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Two Americans share economics Nobel

TT/David Landes · 10 Oct 2011, 13:04

Published: 10 Oct 2011 13:04 GMT+02:00

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This year's prize was about “expectations”, said Staffan Normark, the permanent secretary of the Swedish Royal Academy of Sciences in a press conference announcing the award.

Sargent, based at New York University, and Sims, a professor at Princeton University, have together developed ways for better analyzing and understanding “the causal relationship between economic policy and different macroeconomic variables such as GDP, inflation, employment and investments”, the Academy said in a statement.

Sargent's and Sims' research helps increase understanding of the “two-way relationship” between policy and the economy by examining the role of expectations.

“Expectations regarding the future are primary aspects of this interplay,” the Academy said.

“The expectations of the private sector regarding future economic activity and policy influence decisions about wages, saving and investments. Concurrently, economic-policy decisions are influenced by expectations about developments in the private sector.”

Methods developed by the two economists can help identify the causal relationships between policy and actors in the economy, thus making it possible to explain the role of expectations and “ascertain the effects of unexpected policy measures as well as systematic policy shifts”.

Sargent has shown how “structural macroeconometrics” can be used to analyze permanent changes in economic policy, while Sims developed a method based on ”vector autoregression” to analyze how economies are affected by temporary changes in economic policy and other factors.

While Sargent and Sims carried out their research independently, their contributions are complementary in several ways, according to the Academy.

Much of their important work from the 1970s and 1980s has been adopted by both researchers and policymakers around the world and the tools they developed are considered to be "essential" in macroeconomic analysis.

Sims, who participated in Monday's press conference via telephone, said he had not expected to win the Nobel.

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He was later asked how his methods could be used to deal with the world's current economic crisis.

"If I had a simple answer to that I'd spread it across the world," he said.

"I have no simple answer, but I think that the methods that I've used are central for pulling us out of this mess."

TT/David Landes (news@thelocal.se)

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Your comments about this article

16:05 October 10, 2011 by anonymous4
How could two Americans win the Nobel Prize for economics when the USA is BROKE?
16:11 October 10, 2011 by eppie
And they actually have won most economy nobel prizes.

Indeed striking, for sure because we are talking for people that have been working, doing science on an economic system that has worked for 30-40 years....when there was no issue at all for growth. Growth was good, and as long as we keep growing the economy will remain good. I am not an expert on economy but I guess many of the claims made by older winners don't apply anymore nowadays.

I keep finding it a strange prize....that prize in economy.
18:46 October 10, 2011 by mkvgtired

Did you ever consider that the US didn't follow their policies?
22:27 October 10, 2011 by riose
The economics Nobel prize: The only Nobel that is not a Nobel :P
15:28 October 11, 2011 by dugnutt
Writing theory is fine but whats the use in telling us all that keeping inflation down is good medicine now if it means that in a few years consumer spending is still so low inflation trebles in a month and becomes the poison that will break bank and investments.

They also espouse quantitative easing as one of the panaceas to recovery, how when the money sits in the bank and isnt being lent to entrepreneurs and worthy businesses seeking expansion. Much better that every tax payer be given a few thousand to spend on reducing their dept and spending in local businesses. The nobel committee has obviously reviewed this too early.

Doug from Bolton, Englan.
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