Friday, October 14, 2011

American Economists Win Nobel Prize

Two Americans were awarded the 2011 Nobel Prize in economics on Monday for their research into the cause-and-effect relationship between economic policy and the broader economy as a whole.
The two men, Thomas Sargent of New York University and Christopher Sims of Princeton University, carried out their research independently in the 1970s and ‘80s, but their work “is highly relevant today as world governments and central banks seek ways to steer their economies away from another recession,” the Associated Press reports.

The Royal Swedish Academy of Sciences that awards the prize said the two economists, both 68, had developed methods for answering questions such as how GDP and inflation are affected by temporary interest rate hikes or a tax cut.
"Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis," the academy said in its citation.

Back in the 1970s, Dr. Sargent and Dr. Sims were interested in figuring out how a new policy, like a tax cut or an interest rate increase, might affect the economy. But economists cannot run controlled experiments in real life to see what happens when a policy is executed and compare the results to when it is not. Instead, they have to study whatever history is available to them, with all the complicated conditions that happened to coincide with the policy change.
Dr. Sargent and Dr. Sims developed statistical methods to organize historical data and disentangle the many variables.
Here’s how the New York Times summed up their research: “Their work uses statistical analysis to disentangle the question of whether a policy change that happened in the past affected the economy or whether it was made in anticipation of events that policymakers thought would happen later. This research has also helped economists better understand how people’s expectations for policy affect the economy.”

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