The purpose of this study is to review the empirical literature on the Lucas variability hypothesis. The Lucas variability hypothesis states that the reaction of real output to changes in aggregate demand depends negatively on the variance of the changes of aggregate demand. In the literature there are many applications of the Lucas hypothesis in different respects. We divided empirical studies into three groups with regard to type of data used in econometric analysis; cross-sectional intertemporal and cross-industries studies. The evidences provided by the existing studies are not clear to make conclusion about empirical validity of the hypothesis. We can only conclude that the validity of the hypothesis depends on the econometric methodology, frequency of data, time period, size of the sample used in empirical studies.
Article Language: Turkish English