Minimize Regulations to Regulate - Extending the Lucas Critique

Author: 
Sugata Marjit
Amit K. Biswas
Hamid Beladi
Description: 
Draft Paper - January 2005
JEL codes: 
Abstract: 
Lucas (1976) argued that interventionist policies in macroeconomics may fail because the policies themselves affect the optimal behavior of private agents and hence the associated response parameters. We extend Lucas's argument and propose that a highly controlled and regulated environment leads to misinterpretation of official statistics and therefore distorts policy predictions based on such information. In a way policies will have predictability in a more open and less regulated environment.