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article image2011 Economics Nobel Prize won jointly by two Americans

By Nancy Houser     Oct 10, 2011 in Science
Stockholm - Two Americans, Dr. Thomas Sargent and Dr. Christopher Sims, have reciprocally won the 2011 Nobel Prize in Economic Sciences, “for their empirical research on cause and effect in the macroeconomy,” clarifying how government policy affects the economy.
"It is not an exaggeration to say that both Sargent's and Sims' methods are used daily ... in all central banks that I know of in the developed world and at several finance departments too," Nobel committee member Torsten Persson told the AP. (MSNBC)
The two 68-year old Nobel winners of $1.48 million dollars have been friends since the 60s. While working together in the 70s, they had begun work separately on how new policy changes would affect the economy and clear up the massive financial mess---such as a raise in interest rates or tax cuts. This was a major concern in countries still struggling to address the aftermath of the recent financial crisis.
New policies for economical changes
According to the NY Times article, “American economists share Nobel Prize,” new policies for real life economy changes cannot be double-checked by using controlled experiments. Without them, the new policy cannot be tested to see if it is causally effective.
Therefore, Dr. Sargent and Dr. Sims needed to study what was historically available to them, including all corresponding conditions that would occur simultaneously with the policy change. Before they could do this, they needed to develop a new statistical method to organize the data and its variables. The new method and its methodologies also needed to foresee how the American citizen’s expectations for government policies would affect their behavior, as "people and businesses often don't respond to policy changes predictably." (MSNBC)
The New York Times reports, “For both Sims and Sargent, their research is fundamental,” said Mark Watson, an economics professor at Princeton. “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.”
Nobel Laureates are announced at a press conference immediately after the awarding institutions meet...
Nobel Laureates are announced at a press conference immediately after the awarding institutions meet and choose from among the candidates the Nobel committees have recommended.
Nobel.org
Dr. Sargent's work assumes that people will base their expectations on continuously updated and reinterpreted information, while Dr. Sims work is the application of vector auto-regression models in predicting economic outcomes, reports Business Week. “Although Sargent and Sims carried out their research independently, their contributions are complementary in several ways,” the academy said. "Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis.”
Politics and economy
According to Thomas Sargent, economic problems are based on politics, “The difficult thing is the politics,” he said in Business Week, comparing today’s problems to early U.S. history when each of the 13 states were running their politics and issuing their debt individually. Current economists feel that the U.S. should “adopt a plan to deal with the budget deficit while avoiding fiscal stringency in the short-run and maintaining an accommodative monetary policy.”
“The problem is figuring out how in the real world to get these things done,” Sargent said, while stating that the budget policy in the United States is very uncertain because the government cannot keep its pledges on future benefits while keeping taxes down. “It’s not clear which of the incredible promises are going to be broken first,” he said.
Previous Nobel Winners in Economics:
2011 - Thomas J. Sargent, Christopher A. Sims
2010 - Peter A. Diamond, Dale T. Mortensen, Christopher A. Pissarides
2009 - Elinor Ostrom, Oliver E. Williamson
2008 - Paul Krugman
2007 - Leonid Hurwicz, Eric S. Maskin, Roger B. Myerson
2006 - Edmund S. Phelps
2005 - Robert J. Aumann, Thomas C. Schelling
2004 - Finn E. Kydland, Edward C. Prescott
2003 - Robert F. Engle III, Clive W.J. Granger
2002 - Daniel Kahneman, Vernon L. Smith
2001 - George A. Akerlof, A. Michael Spence, Joseph E. Stiglitz
2000 - James J. Heckman, Daniel L. McFadden
1999 - Robert A. Mundell
1998 - Amartya Sen
1997 - Robert C. Merton, Myron S. Scholes
1996 - James A. Mirrlees, William Vickrey
1995 - Robert E. Lucas Jr.
1994 - John C. Harsanyi, John F. Nash Jr., Reinhard Selten
1993 - Robert W. Fogel, Douglass C. North
1992 - Gary S. Becker
1991 - Ronald H. Coase
1990 - Harry M. Markowitz, Merton H. Miller, William F. Sharpe
1989 - Trygve Haavelmo
1988 - Maurice Allais
1987 - Robert M. Solow
1986 - James M. Buchanan Jr.
1985 - Franco Modigliani
1984 - Richard Stone
1983 - Gerard Debreu
1982 - George J. Stigler
1981 - James Tobin
1980 - Lawrence R. Klein
1979 - Theodore W. Schultz, Sir Arthur Lewis
1978 - Herbert A. Simon
1977 - Bertil Ohlin, James E. Meade
1976 - Milton Friedman
1975 - Leonid Vitaliyevich Kantorovich, Tjalling C. Koopmans
1974 - Gunnar Myrdal, Friedrich August von Hayek
1973 - Wassily Leontief
1972 - John R. Hicks, Kenneth J. Arrow
1971 - Simon Kuznets
1970 - Paul A. Samuelson
1969 - Ragnar Frisch, Jan Tinbergen
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