Macro-economists share Nobel prize

Two American macro-economists have shared the 2011 Nobel Prize in Economic Sciences for their work in sorting out cause from effect in the economy and policy.

New York University’s Thomas Sargent and Princeton University’s Christopher Sims, both aged 68, will share the 10 million-krona ($US1.5 million) prize that comes with the award.

Their research has helped central bankers and government officials to determine how changes in policy affect the economy, and vice versa.

Sargent’s research has centered around the rational expectations hypothesis, which assumes people base their expectations on constantly updated and reinterpreted information.

Sims is known for his application of multiple- equation, econometric models – known as vector auto-regression – in predicting economic outcomes.

“Although Sargent and Sims carried out their research independently, their contributions are complementary in several ways,” the Royal Swedish Academy of Sciences said in its citation.

“The laureates’ seminal work during the 1970s and 1980s has been adopted by both researchers and policy makers throughout the world. Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis.”

Sargent’s work suggests that government stimulus programmes such as those advocated by John Maynard Keynes have a limited effect on the economy because consumers and companies realise the measures will be temporary.

The award to Sargent “is very much a ‘non-Keynesian’ prize,” said Tyler Cowen, professor of economics at George Mason University.

Sargent received his bachelor’s degree from the University of California at Berkeley in 1964, winning the medal as the university’s most distinguished scholar the same year. He obtained his Ph.D. at Harvard University in March 1968 and is the William R. Berkley Professor of Business and Economics at New York University. He spent much of his career teaching at the University of Minnesota.

Sims has been a professor at Princeton since 1999. He graduated with a bachelor’s of mathematics from Harvard in 1963 and earned his doctorate in economics there in 1968. He has held positions at Yale University, the University of Minnesota and Harvard and has been a member of the National Academy of Sciences since 1989.

“There’s no simple way to apply it,” Sims said at a press conference after the prize was announced, in response to a question on how his research could be used to analyse the current economic situation.

“It requires a lot of slow work looking at data – the methods I use and that Tom have developed are central to finding our way out of this mess.”