Minimize Regulations to Regulate - Extending the Lucas Critique

Sugata Marjit, Amit K. Biswas and Hamid Beladi

Macroeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: Lucas (1976) argued that interventionist policies in macroeconomics may fail because the policies themselves affect the optimal behavior of private agents and hence the associated response parameters. We extend Lucas's argument and propose that a highly controlled and regulated environment leads to misinterpretation of official statistics and therefore distorts policy predictions based on such information. In a way policies will have predictability in a more open and less regulated environment.

Keywords: Lucas critique; policy distortion; government; regulation (search for similar items in EconPapers)
JEL-codes: E10 K23 K42 (search for similar items in EconPapers)
Date: 2005-01
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Journal Article: Minimize regulations to regulate -- Extending the Lucas Critique (2008)
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