An empirical investigation of the term structure (the relation of the long interest rate to the short interest rate) showed structural change as the deadline for the euro became closer. Our empirical analysis of the term structures (yield curves) in 12 OECD countries uncovers that econometrically estimated behavioural equations for most EMU countries were stable even in the light of the creation of the euro. This finding would seem to defy the Lucas Critique. However, the significant structural instability found for the euro area's core country Germany suggests that the Lucas Critique is relevant in the analysis of the impact of the creation (and future extensions) of EMU.

Lucas Critique, Monetary Union, term structure
hdl.handle.net/1765/21533
ISS Staff Group 0
University of Zurich. Institute for Empirical Research in Economics. Working Paper
International Institute of Social Studies of Erasmus University (ISS)

van Bergeijk, P.A.G, & Berk, J.M. (2001). The Lucas Critique in Practice: An Empirical Investigation of the Impact of European Monetary Integration on the Term Structure. University of Zurich. Institute for Empirical Research in Economics. Working Paper. Retrieved from http://hdl.handle.net/1765/21533