Economics · Econometrics and Policy Analysis
The Lucas Critique argues that:
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- 1Business cycles are caused by real supply-side shocks only
- 2The natural rate of unemployment is zero in equilibrium
- 3Rational expectations are impossible to model mathematically
- 4Econometric models based on historical data are unreliable for policy evaluation because structural parameters change when policies change✓
Correct answer
Econometric models based on historical data are unreliable for policy evaluation because structural parameters change when policies change
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