The Origin of Lucasʼs Economics:

The Macro Rational Expectation Model and the Refraction of the Chicago School

Abstract

This paper focuses on three papers by Lucas in his early career as a macroeconomist. Consider-ing Lucas and Rapping （1969）, Lucas and Pres-cott （1970）, and Lucas （1972） successively, we found that Lucasʼs first macro rational expecta-tion model was built combining his macroeco-nomic interest in labor supply and smart mathe-matical techniques to treat a stochastic process and probability. The former had arisen through research from a Keynesian perspective. The latter was the result of research on the investment function, which was parallel to Tobinʼs q theory. We can therefore conclude that Lucasʼs econom-ics was born in a more Keynesian context than has ever been thought. This historical aspect has been virtually neglected by those who thought much of ideological slogans of the macro ration-al expectation school. Lucas （1972）, which pro-vided the first macro rational expectation model, was too complicated in terms of structure. Be-sides its very structure, however, it is more important to point out that Lucas introduced to modern macroeconomic theory the concept that stochastic shocks are the main causal factors of economic fluctuations. This revived the lost leg-acy in the early history of econometric research. Lucasʼs economics turns out to have a very interesting feature from this point of view. Though it always retains general equilibrium as the reference axis, it tends to escape from the equilibrium strongly determined by the excess power of the economy. When Lucas built an endogenous growth model, he added an external effect term to Uzawaʼs production function. Such a com-pound feature of Lucasʼs economics made the Chicago school more comprehensive and truly the mainstream of contemporary macroeconom-ics. JEL classification numbers: B 22, E 13.