The Lucas Critique in Practice: An Empirical Investigation of the Impact of European Monetary Integration on the Term Structure

Zurich IEER Working Paper No. 82

20 Pages Posted: 8 Aug 2001

See all articles by Peter A. G. van Bergeijk

Peter A. G. van Bergeijk

Ministry of Economic Affairs

Jan Marc Berk

De Nederlandsche Bank; SUERF - The European money and finance forum

Date Written: July 2001

Abstract

An empirical investigation of the term structure (the relation of the long interest rate to the short interest rate) showed structural change as the deadline for the euro became closer. Our empirical analysis of the term structures (yield curves) in 12 OECD countries uncovers that econometrically estimated behavioural equations for most EMU countries were stable even in the light of the creation of the euro. This finding would seem to defy the Lucas Critique. However, the significant structural instability found for the euro area's core country Germany suggests that the Lucas Critique is relevant in the analysis of the impact of the creation (and future extensions) of EMU.

Keywords: Lucas Critique, Monetary Union, Term Structure

JEL Classification: 1320, 3110

Suggested Citation

van Bergeijk, Peter A. G. and Berk, Jan Marc, The Lucas Critique in Practice: An Empirical Investigation of the Impact of European Monetary Integration on the Term Structure (July 2001). Zurich IEER Working Paper No. 82, Available at SSRN: https://ssrn.com/abstract=279314 or http://dx.doi.org/10.2139/ssrn.279314

Peter A. G. Van Bergeijk (Contact Author)

Ministry of Economic Affairs ( email )

Bezuidenhoutseweg 20
Den Haag, 2594 AV
Netherlands
+31 70 3796312 (Phone)

HOME PAGE: http://economie.blogspot.com

Jan Marc Berk

De Nederlandsche Bank ( email )

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Netherlands
+31 20 524 3912 (Phone)
+31 20 524 2506 (Fax)

SUERF - The European money and finance forum ( email )

PO Box 98
Amsterdam, 1000AB
Netherlands

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