The Quantitative Significance of the Lucas Critique: Comment

James Hamilton

Journal of Business & Economic Statistics, 1991, vol. 9, issue 4, 388-89

Abstract: A vector autoregression is a reduced-form representation, and, therefore, would be expected to change when any structural equation in the system changes, regardless of whether economic decisions are forward-looking. Even so, a dynamic simulation of a model with unit roots will exhibit large cumulative errors, making it difficult to detect whether structural change has indeed occurred.

Date: 1991
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