European Monetary Union, the term structure, and the Lucas Critique

Peter A.G. Vanbergeijk, Jan Marc Berk

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In order to evaluate the empirical relevance of the Lucas Critique, weinvestigate whether the term structure (the relation of the long interest rate to theshort interest rate) showed structural change as the deadline for the euro becamecloser. Our empirical analysis of the term structures (yield curves) in 12 OECDcountries uncovers that econometrically estimated behavioural equations for mostEMU countries were stable even in the light of the creation of the euro. This findingwould seem to defy the Lucas Critique. However, fhe significant structural instabilityfound for the euro area's core country Germany suggests that the Lucas Critique isrelevant in the analysis of the impact of the creation (and future extensions) of EMU.
Original languageEnglish
Place of PublicationAmsterdam
PublisherFaculty of Economics and Business Administration, Vrije Universiteit Amsterdam
Publication statusPublished - 2001

Publication series

NameResearch Memorandum

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