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Volume 7 (21) Number 3 pp. 61-82

Peter Galbács

Department of International Economics, Budapest Business School and ’Bolyai’ distinguished research professor of the Hungarian Academy of Sciences

What did it take for Lucas to set up ‘useful’ analogue systems in monetary business cycle theory?

Abstract:

This paper provides a look into what Lucas meant by the term ‘analogue systems’ and how he conceived making them useful. It is argued that any model with remarkable predictive success can be regarded as an analogue system, the term is thus neutral in terms of usefulness. To be useful Lucas supposed models to meet further requirements. These prerequisites are introduced in two steps in the paper. First, some properties of ‘useless’ Keynesian macroeconometric models come to the fore as contrasting cases. Second, it is argued that Lucas suggested two assumptions as the keys to usefulness for he conceived them as referring to genuine components of social reality and hence as true propositions. One is money as a causal instrument and the other is the choice-theoretic framework to describe the causal mechanisms underlying large-scale fluctuations. Extensive quotes from Lucas’s unpublished materials underpin the claims.

pub/2021_3_61.pdf Full text available in Adobe Acrobat format:
http://www.ebr.edu.pl/volume21/issue3/2021_3_61.pdf
Keywords: microfoundations, neoclassical choice-theory, business cycle theory, rational expectations, island models, Robert E. Lucas.

DOI: 10.18559/ebr.2021.3.5

For citation:

MLA Galbács, Peter. "What did it take for Lucas to set up ‘useful’ analogue systems in monetary business cycle theory?." Economics and Business Review EBR 21.3 (2021): 61-82. DOI: 10.18559/ebr.2021.3.5
APA Galbács, P. (2021). What did it take for Lucas to set up ‘useful’ analogue systems in monetary business cycle theory?. Economics and Business Review EBR 21(3), 61-82 DOI: 10.18559/ebr.2021.3.5
ISO 690 GALBÁCS, Peter. What did it take for Lucas to set up ‘useful’ analogue systems in monetary business cycle theory?. Economics and Business Review EBR, 2021, 21.3: 61-82. DOI: 10.18559/ebr.2021.3.5