 Beyond the Lucas CritiqueBiagio Bossone Chapter Chapter 11 in Trailblazing Visions of Money in Economic Theory, 2025, pp 271-285 from Springer Abstract: Abstract This chapter discusses the author’s early attempts to address the Lucas Critique. It argues that the effectiveness of a policy regime depends on the reference model that people believe accurately reflects the economy. If the reference model changes, people’s expectations and behaviors will also change. This, in turn, alters the impact of new policy rules compared to those based on the old model. The chapter shows that in an economy agents do not only adjust their behavior in response to policy changes, thereby altering historical responses; they also modify their response to policy changes based on the model of the economy they believe correctly represents the economy. Consequently, monetary policy may or may not be effective depending on: (i) the economic model adopted (albeit conventionally) by the agents and (ii) the behaviors that agents consider rational (in accordance with the accepted convention) and consequently adopt. Importantly, in evaluating the effectiveness of monetary policy, understanding the prevailing conventions that lead agents to accept a model as “true” is more rimportant than pinpointing the ontologically “true” model of the economy. Date: 2025 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-031-82544-6_11 Ordering information: This item can be ordered from DOI: 10.1007/978-3-031-82544-6_11 Access Statistics for this chapter More chapters in Contributions to Economics from Springer |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.