The Lucas critique argues that an econometric model constructed using past data
A)may be appropriate for short-run forecasting,but is inappropriate for policy analysis.
B)may be appropriate for policy analysis,but is inappropriate for short-run forecasting.
C)is appropriate for short-run forecasting and policy analysis.
D)is inappropriate for policy analysis and short-run forecasting.

Question

Quizplus · Accepted Answer

The Lucas critique suggests that econometric models based on historical data may not accurately predict the effects of policy changes because they do not account for changes in people's behavior in response to new policies. Thus, while they might be useful for short-run forecasting, they are inappropriate for policy analysis.

The Lucas Critique Argues That an Econometric Model Constructed Using