Americans Thomas Sargent and Christopher Sims won the Nobel economics prize yesterday for research that sheds light on the relationship between the economy and policy instruments such as interest rates and government spending.
Sargent and Sims, both 68, carried out their research independently in the 1970s and 1980s, but it is relevant today as world governments and central banks seek ways to steer their economies away from recession.
The Royal Swedish Academy of Sciences said the winners have developed methods for answering questions such as how economic growth and inflation are affected by a temporary increase in interest rates or by a tax cut.
In its citation, the academy said: "Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis."
Sargent is a professor at New York University and Sims is a professor at Prince-ton University.
The academy cited the two "for their empirical research on cause and effect in the macroeconomy."
Sims said he was sleeping when he received the call from the prize committee and he had not expected to win.
"Actually, at first we were called twice and my wife could not find the talk button on the phone so we went back to sleep," he said.
Sims said there was no easy way his work could help resolve the current financial turmoil.
"I do not have any simple answer, but the methods I have used and Tom has developed are central to finding our way out of this mess," he said. "They point a way to trying to unravel why our serious problems develop and new research using these methods may help to lead us out of it."
Asked how he would invest his half of the 10 million kronor (US$1.5 million) award, Sims said: "First thing I am going to do is keep it in cash for a while and think."
Sargent's wife Carolyn said her husband was quiet when he learned he had won. "I think he is in awe," she said.
She added he went about his usual routine and was taking the train from New York City to Princeton, New Jersey, where he is teaching.
The academy said Sargent showed how "structural macro-econometrics" can be used to analyze permanent changes in economic policy - a method that can be applied to studying how households and firms adjust their expectations concurrently with economic developments.
Sims developed a method based on so-called vector autoregression to analyze how the economy is affected by temporary changes in economic policy and other factors, such as an increase in the interest rate, according to the academy.
It added: "Sargent has primarily helped us understand the effects of systematic policy shifts, while Sims has focused on how shocks spread throughout the economy."
The economics prize capped this year's Nobel announcements. The awards will be handed out on December 10 - the anniversary of prize founder Alfred Nobel's death.
The economics prize is not among the original awards established in Nobel's 1895 will, but was created in 1968 by the Swedish central bank.
Sargent and Sims, both 68, carried out their research independently in the 1970s and 1980s, but it is relevant today as world governments and central banks seek ways to steer their economies away from recession.
The Royal Swedish Academy of Sciences said the winners have developed methods for answering questions such as how economic growth and inflation are affected by a temporary increase in interest rates or by a tax cut.
In its citation, the academy said: "Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis."
Sargent is a professor at New York University and Sims is a professor at Prince-ton University.
The academy cited the two "for their empirical research on cause and effect in the macroeconomy."
Sims said he was sleeping when he received the call from the prize committee and he had not expected to win.
"Actually, at first we were called twice and my wife could not find the talk button on the phone so we went back to sleep," he said.
Sims said there was no easy way his work could help resolve the current financial turmoil.
"I do not have any simple answer, but the methods I have used and Tom has developed are central to finding our way out of this mess," he said. "They point a way to trying to unravel why our serious problems develop and new research using these methods may help to lead us out of it."
Asked how he would invest his half of the 10 million kronor (US$1.5 million) award, Sims said: "First thing I am going to do is keep it in cash for a while and think."
Sargent's wife Carolyn said her husband was quiet when he learned he had won. "I think he is in awe," she said.
She added he went about his usual routine and was taking the train from New York City to Princeton, New Jersey, where he is teaching.
The academy said Sargent showed how "structural macro-econometrics" can be used to analyze permanent changes in economic policy - a method that can be applied to studying how households and firms adjust their expectations concurrently with economic developments.
Sims developed a method based on so-called vector autoregression to analyze how the economy is affected by temporary changes in economic policy and other factors, such as an increase in the interest rate, according to the academy.
It added: "Sargent has primarily helped us understand the effects of systematic policy shifts, while Sims has focused on how shocks spread throughout the economy."
The economics prize capped this year's Nobel announcements. The awards will be handed out on December 10 - the anniversary of prize founder Alfred Nobel's death.
The economics prize is not among the original awards established in Nobel's 1895 will, but was created in 1968 by the Swedish central bank.
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