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MENTAL MODEL · M4033

Lucas Critique

Lucas Critique
BusinessHigh supportMacroeconomics
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Version 1.0.0 · Updated 2026-07-28

CORE DEFINITION

The Lucas critique argues that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data. More formally, it states that the decision rules of Keynesian models—such as the consumption function—cannot be considered as structural in the sense of being invariant with respect to policy changes.

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The Lucas critique argues that it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data, especially highly aggregated historical data.

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Macroeconomic econometric models are based on historical behavioral relationships, but policy changes induce rational agents to adjust their expectations and behavior, breaking the original relationship structure, so using old models to predict new policies fails; structural models based on deep preferences must be established.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/Lucas_critiqueZH · Explicit
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