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Critique and consequence
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DOI：10.1016/j.jmoneco.2023.10.001.png)
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Abstract
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After describing the landscape in macroeconomics and econometrics in Spring 1973 when Robert E. Lucas (1976) first presented his Critique at the inaugural Carnegie-Rochester con-ference, I add a fourth example based on Sargent and Wallace (1973) to those in section 5 of Lucas's paper. To portray consequences of Lucas's Critique, I use it as a vehicle to describe the time inconsistency of optimal plans and their credibility. A theory of government policy affects chains of influence among money creation and inflation rates at different dates. Different theories of policy bring different state vectors in recursive representations of inflation-money-supply outcomes.
Keywords:
Rational expectations
Cross-equation restrictions
Time-inconsistency
Dynamic programming squared
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