Reacting to the Lucas Critique: The Keynesians' Pragmatic Replies

Documents de travail du Centre d’Economie de la Sorbonne No. 2017.42

42 Pages Posted: 30 Oct 2017 Last revised: 9 May 2018

See all articles by Aurélien Goutsmedt

Aurélien Goutsmedt

Université Paris I Panthéon-Sorbonne

Erich Pinzón-Fuchs

Universidad Nacional de Colombia

Matthieu Renault

Universidade de São Paulo - Department of Economics (FEA-USP)

Francesco Sergi

Université Paris Est Créteil, LIPHA

Date Written: October 27, 2017

Abstract

We illustrate how the Lucas Critique was called into question by Keynesian macroeconomists during the 1970s and 1980s. Our claim is that Keynesians’ reactions were carried out from a pragmatic approach, which addressed the empirical and practical relevance of the Critique. Keynesians rejected the Critique as a general principle with no relevance for concrete macroeconometric practice; their rejection relied on econometric investigations and contextual analysis of the U.S. 1970s stagflation and its aftermath. Keynesians argued that the parameters of their models remained stable across this period, and that simpler ways to account for stagflation (such as the introduction of supply shocks into their models) provided better alternatives to improve policy evaluation.

Keywords: History of Macroeconomics, Lucas Critique, Keynesian Macroeconometrics, Stagflation

JEL Classification: B22, B41, E60, E12

Suggested Citation

Goutsmedt, Aurélien and Pinzón-Fuchs, Erich and Renault, Matthieu and Sergi, Francesco, Reacting to the Lucas Critique: The Keynesians' Pragmatic Replies (October 27, 2017). Documents de travail du Centre d’Economie de la Sorbonne No. 2017.42 . Available at SSRN: https://ssrn.com/abstract=3060571 or http://dx.doi.org/10.2139/ssrn.3060571

Aurélien Goutsmedt (Contact Author)

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
Paris, IL 75005
France

Erich Pinzón-Fuchs

Universidad Nacional de Colombia ( email )

Carrera 30 45-03
Bogota, None
Colombia

HOME PAGE: http://https://erichpinzonfuchs.wordpress.com/

Matthieu Renault

Universidade de São Paulo - Department of Economics (FEA-USP) ( email )

Av. Prof. Luciano Gualberto 908
São Paulo, São Paulo 05508-900
Brazil

Francesco Sergi

Université Paris Est Créteil, LIPHA ( email )

61 avenue du General de Gaulle
Créteil Cede, 94010
France

HOME PAGE: http://lipha.u-pec.fr/membres/membres-permanents/sergi-francesco-909980.kjsp?RH=1222865797626

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