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Norwegian, American win economics prize
(Agencies)
Updated: 2004-10-11 20:41 Norwegian Finn Kydland and
Edward Prescott of the United States won the Nobel economics prize for 2004 on
Monday for analyzing how economic policy is shaped and what drives business
cycles.
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| Finn Kydland(L) & Edward Prescott
[Reuters] | "Their work has not only transformed
economic research, but has also profoundly influenced the practice of economic
policy in general, and monetary policy in particular," the Royal Swedish Academy
of Sciences said in its citation.
Their research has "transformed the theory of business
cycles by integrating it with the theory of economic growth."
Kydland, who teaches at Carnegie Mellon University and the
University of California, and Prescott, who works at Arizona State University
and the Federal Reserve Bank of Minneapolis, share
the 10 million Swedish crown ($1.36 million) prize.
Their 1977 research on the "time consistency problem"
described how policy makers often have an effect opposite to that intended
because they lack consistency -- for example, setting out to keep prices stable
but in fact creating inflation.
Their work helped shift the focus in policy-making to
institutions rather than isolated measures.
In 1982 they created a model which showed that supply-side
shocks -- such as technology -- are a driving force behind the business cycle,
rather than variations in demand alone.
"Whereas earlier research had emphasized macroeconomic
shocks on the demand side of the economy, Kydland and Prescott demonstrated that
shocks on the supply side may have far-reaching effects," said the Academy.
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