Which of the following is a characteristic of the 'Lucas Critique'?
A. Rational expectations are irrelevant for policy
B. Policy evaluation based on historical correlations remains valid under policy changes
C. Only adaptive expectations matter
D. Econometric models based on past data may fail when policy regimes change because agents alter their behaviour
Answer: Option D
Solution (By JKSSB Mock Tests)
The Lucas Critique argues that the parameters of traditional econometric models are not policy-invariant because economic agents change their behaviour when policy rules change.
Explanation:
Public sector enterprises in India have historically pursued a combination of commercial viability and broader social and strategic objectives.
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