Nobel Prize in Economics
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The Nobel Prize in Economics was awarded yesterday to Thomas Sargent and Christopher Sims.
They had studied how economic policy, such as raising interest rates or cutting taxes, affects macroeconomic variables such as GDP and inflation.
The Nobel committee said the economists had enhanced the understanding of cause and effect in macro-economic modelling, allowing policymakers to better estimate the effect of their own policies and other influences such as falling productivity or rising inflation.
They have attempted to “sort out cause and effect” in economic theory and especially how expectations of the future affect decision making in the present.
Sims and Sargent have looked at many chicken-and-egg questions including whether central banks push up inflation through raising interest rates or whether they raise rates in anticipation of inflation rises already in the pipeline. “They have developed methods to help define ‘what caused what’ in economics such as sudden oil price rises or changes in productivity,” said a committee spokesman.
Read more here.
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