Lucas supply function
E455410
The Lucas supply function is an economic model developed by Robert Lucas Jr. that explains how producers’ output decisions respond to perceived price changes under imperfect information, forming a key component of new classical macroeconomics.
Statements (46)
| Predicate | Object |
|---|---|
| instanceOf |
economic model
ⓘ
macroeconomic theory component ⓘ |
| addresses | expectations and information in macroeconomic fluctuations ⓘ |
| assumes |
agents have rational expectations about aggregate variables
ⓘ
agents know the structure of the economy ⓘ information is imperfect and dispersed ⓘ market-clearing prices ⓘ no systematic money illusion but temporary misperceptions ⓘ producers observe nominal prices but not the aggregate price level perfectly ⓘ shocks are partly unobservable when decisions are made ⓘ |
| basedOn |
imperfect information
ⓘ
rational expectations ⓘ |
| componentOf | Lucas misperceptions model NERFINISHED ⓘ |
| contrastsWith | Keynesian aggregate supply with nominal rigidities ⓘ |
| coreIdea | producers confuse relative price changes with aggregate price level changes ⓘ |
| criticizes | traditional Phillips curve as a stable trade-off ⓘ |
| describes | relationship between output and unexpected price changes ⓘ |
| developedBy | Robert Lucas Jr. NERFINISHED ⓘ |
| explains |
how producers respond to perceived price changes
ⓘ
output deviations from natural level due to information problems ⓘ |
| field |
macroeconomics
ⓘ
new classical macroeconomics ⓘ |
| historicalContext | developed in the 1970s ⓘ |
| implies |
anticipated monetary policy is neutral with respect to real output
ⓘ
only unanticipated monetary shocks affect real output in the short run ⓘ |
| influenced | modern macroeconomic modeling of supply ⓘ |
| influencedBy | Friedman’s expectations-augmented Phillips curve NERFINISHED ⓘ |
| inMacroeconomicModel | aggregate supply curve with expectations term ⓘ |
| mathematicalForm | y = y* + α(p - E[p]) ⓘ |
| namedAfter | Robert Lucas Jr. NERFINISHED ⓘ |
| parameter | α (sensitivity of output to unexpected price changes) ⓘ |
| relatedConcept |
monetary neutrality in the long run
ⓘ
rational expectations revolution ⓘ signal extraction problem ⓘ unanticipated monetary shocks ⓘ |
| relatesTo | short-run aggregate supply ⓘ |
| roleInTheory | foundation for new classical aggregate supply analysis ⓘ |
| supports | policy ineffectiveness proposition under rational expectations ⓘ |
| usedFor |
analyzing effects of monetary policy under rational expectations
ⓘ
explaining short-run non-neutrality of money with imperfect information ⓘ |
| usedIn |
Lucas islands model
NERFINISHED
ⓘ
new classical business cycle theory ⓘ |
| variable |
E[p] (expected price level or expected log of price level)
ⓘ
p (actual price level or log of price level) ⓘ y (actual output) ⓘ y* (natural level of output) ⓘ |
Referenced by (1)
Full triples — surface form annotated when it differs from this entity's canonical label.