Nobel Prize Awarded To Two American Economists

The 2011 Nobel Peace Prize for economics has been give to Thomas Sargent, of New York University, and Christopher Sims, of Princeton University by the Royal Swedish Academy of Sciences. Their research was focused on the cause and effect of government policies on the broader economy. 

“In the early to mid-1970s, Sargent wrote a number of highly influential papers, where he showed how rational expectations implied a radical reinterpretation of empirical macroeconomic phenomena and rendered invalid conventional statistical tests of macroeconomic relations….Taken together, these papers had a profound impact on central hypotheses about the role of monetary policy and the Phillips-curve trade off. Compared to other researchers at the time, Sargent focused more on actual data and on ways to evaluate theory by taking active expectations formation into account. He was thus able to show why earlier tests had gone wrong and how new, more accurate, tests could be constructed.”

The citation goes on:

“[Sargent and his co-authors’] estimates suggest that the central bank was initially fooled by an incorrect belief about the Phillips curve, which led to a gradual increase in the inflation rate. But the sequence of shocks in the 1970s, along with a revision of the central bank’s beliefs, generated a subsequent fall in inflation.”

Mark Watson, an economics professor at Princeton said, “For both Sims and Sargent, their research is fundamental. They figured out what it is you need to know to answer this cause and effect question, and then they developed methods for actually measuring the effects of causes.”

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