Template-type: ReDIF-Paper 1.0
Author-Name: David Hendry
Author-Email: david.hendry@nuffield.ox.ac.uk
Author-Homepage:http://www.nuff.ox.ac.uk/economics/people/hendry.htm 
Author-Workplace-Name:Nuffield College, Oxford University
Author-Workplace-Homepage:http://www.nuff.ox.ac.uk/nuffield.html
Title: Forecast Failure, Expectations Formation, and the Lucas Critique
Abstract:
  Since forecast failure is due to unanticipated large shifts in
  deterministic factors,'sensible' agents should adopt 'robust
  forecasting rules'. Unless the model coincides with the
  generating mechanism, one cannot even prove that causal
  variables will dominate non-causal in forecasting.
  In such a non-stationary world, 'rational expectations' do
  not have an epistemologically-sound basis: agents cannot
  know how all relevant information enters the joint data
  density at every point in time.  Thus, although
  econometric models 'break down' intermittently when
  deterministic shifts occur, that is not due to the
  Lucas critique and need not impugen their value for policy analyses.
Length:15 pages
Creation-Date: 2000-03-13
Number:2002-W8
File-URL:http://www.nuff.ox.ac.uk/economics/papers/2002/w8/FFlucas.pdf
File-Format: application/pdf
Handle: RePEc:nuf:econwp:0208