European Monetary Union, the term structure, and the Lucas Critique

Peter A.G. Vanbergeijk and Jan Marc Berk
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Peter A.G. Vanbergeijk: Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics
Authors registered in the RePEc Author Service: Peter A.G. van Bergeijk

No 13, Serie Research Memoranda from VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics

Abstract: In order to evaluate the empirical relevance of the Lucas Critique, we investigate whether the term structure (the relation of the long interest rate to the short interest rate) showed structural change as the deadline for the euro became closer. Our empirical analysis of the term structures (yield curves) in 12 OECD countries uncovers that econometrically estimated behavioural equations for most EMU countries were stable even in the light of the creation of the euro. This finding would seem to defy the Lucas Critique. However, fhe significant structural instability found for the euro area’s core country Germany suggests that the Lucas Critique is relevant in the analysis of the impact of the creation (and future extensions) of EMU.

Keywords: Lucas Critique; monetary union; term structure (search for similar items in EconPapers)
JEL-codes: C53 E43 F33 (search for similar items in EconPapers)
Date: 2001
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Citations: View citations in EconPapers (4)

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Journal Article: European Monetary Union, the Term Structure, and the Lucas Critique (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:vua:wpaper:2001-13

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