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Federal Reserve Bank of San Francisco
Working Paper Series
Assessing the Lucas critique in monetary policy models
Glenn D. Rudebusch

Empirical estimates of monetary policy rules suggest that the behavior of U.S. monetary policymakers changed during the past few decades. However, at the same time, statistical analyses of lagged representations of the economy, such as VARs, often have not rejected the null of structural stability. These two sets of empirical results appear to contradict the Lucas critique. This paper provides a reconciliation by showing that the apparent policy invariance of reduced forms is consistent with the magnitude of historical policy shifts and the relative insensitivity of the reduced forms of plausible forward-looking macroeconomic specifications to policy shifts.

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Glenn D. Rudebusch, Assessing the Lucas critique in monetary policy models, Federal Reserve Bank of San Francisco, Working Paper Series 2002-02, 2002.
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Keywords: Monetary policy ; Vector autoregression ; Lucas; Robert E.
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