Working Paper: NBER ID: w1160
Authors: Bennett T. McCallum
Abstract: The model developed in Robert Lucas's influential "Expectations and the Neutrality of Money" has not been widely used for extensions or modifications of the original analysis, in part because of its difficulty of manipulation.The present paper describes a linearized version that--unlike other models prominent in the rational expectations literature--retains the original's mainfeatures yet is comparatively easy to manipulate.Two examples of modifications facilitated by this linearization are included. These involve an autoregressive money growth specification and the assumption of lump-sum (rather than proportional)monetary transfers.
Keywords: Lucas model; monetary policy; linearization; employment-output
JEL Codes: E52; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| monetary policy (E52) | aggregate employment-output (E23) |
| variance of monetary shocks (E39) | slope coefficient of employment-output response (E23) |