"My recollection is that Bob Lucas and Ed Prescott were initially very enthusiastic about rational expectations econometrics. After all, it simply involved imposing on ourselves the same high standards we had criticized the Keynesians for failing to live up to. But after about five years of doing likelihood ratio tests on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models."I believe he made a similar point in this interview, which I linked when he got the Nobel.
Monday, May 27, 2013
Posted by dkuehn at 7:16 AM
Also in an attempt to relieve my agony about macroeconomic endogeneity, Grant McDermott shares this interview with Tom Sargent that appears in Macroeconomic Dynamics in 2005. Grant especially likes this passage: