Criticism
Although, the more long-lasting impact of this paper has been methodological the Lucas island model fails to prove with empirical evidence the right amount of volatility in output fluctuations caused by a combination of monetary shocks and information limitation as is implied. Also, the assumption of information limitation in the Lucas model is sometimes not evident in real life scenarios.On a more empirical level, there is too little research on imperfect information as a source of price rigidity in models with perfectly flexible prices.
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