ANALYSIS OF SOME ASPECTS OF THE LUCAS CONCEPT

Alexandru Manole, Ana Carp, Doina Burea and Andreea – Ioana Marinescu
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Alexandru Manole: „Artifex” University of Bucharest
Doina Burea: Bucharest University of Economic Studies
Andreea – Ioana Marinescu: Bucharest University of Economic Studies

Romanian Statistical Review Supplement, 2017, vol. 65, issue 7, 69-77

Abstract: In this article, the authors sought to highlight some definitive aspects of the Lucas model compared to its Philips model. The autoregressive nature of the dVAR model has become an important tool in the macroeconomic analysis known as Box-Jenkins chronological series and ARIMA models. A number of economists have sought to explain how predictions can be made, concluding that the dVAR model provides robust forecasts for unstable chronological series that are subject to intermittent changes over time. Starting from some of Lucas’s criticisms of the Philips curve, the authors sought to critically highlight some aspects of the Lucas curve. In this regard, it starts from the fact that this Lucas curve turns the causality of the conventional Philips curve into a different optics than the natural one, because the Philips curve is commonly used for inflation analysis. Lucas also states that conventional Philips curve models include structural discontinuities that can lead to economic changes. It is argued that changes in economic policy can lead to evolutionary changes. Of course, practical life, but especially the theoretical concept, have some divergences that we have sought to exemplify in this article. Conditional econometric models are theoretically subject to instability and sometimes to failure if unmodulated probabilities, not taken into account, change. Either in this article we tried to demonstrate mathematically what this possibility is. The article starts from the fact that Lucas’s critique is aimed at behavioral equations of systems of simultaneous equations that need to be analyzed in a certain context, in a certain macroeconomic situation. The authors also emphasized the comparison of the probabilities of the results obtained with the data base model, ie the classic models that respond to ideas and the Philips model submitted to the Lucas critics, which lead to a more just possibility to analyze the situation under analysis. An example is given in the article with two agents A and B about their prognoses and mathematical explanation, we come to the conclusion that the criticisms expressed by Lucas are limited in many circumstances. While it is logically possible for conventional Philips curves to actually be reversed Lucas functions, it can be verified only for specific models. It has been concluded that Philips curve is stable over periods of time that included regime changes and structural changes that invoke and change the probability of realization. In essence, the authors conclude that this Lucas critique is a possibility theorem and not a specific one for hypotheses that have verifiable implications.

Keywords: macroeconomics; chronological series; probability; Lucas curve; critical analysis (search for similar items in EconPapers)
JEL-codes: C61 E03 (search for similar items in EconPapers)
Date: 2017
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