Two Americans get prize for study of policy effects

Nobel prize in economic science was awarded to Thomas Sargent and Christopher Sims.

CATHERINE RAMPELL

The Nobel prize in economic science was awarded Monday to Thomas J Sargent at New York University and Christopher A Sims at Princeton University for their research looking at the cause-and-effect relationship between economic policy and the broader economy.

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 peoples expectations for policy affect the economy.

Sims said Monday that his research was relevant for helping countries decide how to respond to the economic stagnation and decimated budgets left by the financial crisis.

The methods that Ive used and that Tom has developed are central for finding our way out of this mess, he said. But asked for specific policy conclusions of his research,he responded,If I had a simple answer,I would have been spreading it around the world.

Sargent,68,on the other hand,has focused on longer-term structural changes in the economy,such as setting a new inflation target. His research has analyzed historical data to better understand how these types of policy changes affect the economy over time. He has also conducted experiments in a sort of laboratory setting to examine how new policies might affect the economy.

The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel is not one of the original Nobel prizes. It was created in 1968 and is awarded annually according to the same principles as for the Nobel Prizes, first begun in 1901.

Christopher A Sims

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Sims,68,is president-elect of American Economic Association. His methodology,developed in the 1970s,has been tremendously influential among all flavors of economists. It helped lend credence to New Keynesianism,the theory that says economy can go into recession because there is not enough demand,and has been the basis of important papers by Ben Bernanke,the Federal Reserve chairman,and Olivier Blanchard,of the IMF.

Thomas J Sargent

Sargent,68, showed how structural macroeconometrics” can be used to analyse changes in economic policy a method that can be applied to study how households and firms adjust their expectations with economic developments.