Cause & Effect, Economy & Policy Pair of Princeton Professors Win Nobel Prize

Daily Herald (Arlington Heights, IL), October 11, 2011 | Go to article overview

Cause & Effect, Economy & Policy Pair of Princeton Professors Win Nobel Prize


Byline: Bloomberg News

New York University's Thomas J. Sargent and Princeton University's Christopher A. Sims shared the 2011 Nobel Prize in Economic Sciences on Monday for their work in sorting out cause from effect in the economy and policy.

The two, both aged 68, will share the $1.48 million prize that comes with the award, the Royal Swedish Academy of Sciences, which selects the winner, said Monday in Stockholm.

"Although Sargent and Sims carried out their research independently, their contributions are complementary in several ways," the academy said. "The laureates' seminal work during the 1970s and 1980s has been adopted by both researchers and policy makers throughout the world. Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis."

Sargent's research has centered around the rational expectations hypothesis, which assumes people base their expectations on constantly updated and reinterpreted information. Sims is known for his application of multiple- equation, econometric models known as vector auto-regression

in predicting economic outcomes.

"Within the economics profession, they are absolutely at the top," Robert Solow, winner of the Nobel economics prize in 1987 and professor emeritus at the Massachusetts Institute of Technology, said in a telephone interview. "They are very, very sophisticated designers of ways to get information out of the time series of economic data."

Central bankers and government officials use the work the two men have done to help determine how changes in policy affect the economy and vice versa, Solow added.

"There's no simple way to apply it," Sims said by phone during a news conference after the prize was announced, in response to a question on how his research could be used to analyze the current economic situation. "It requires a lot of slow work

looking at data the methods I use and that Tom have developed are central to finding our way out of this mess."

The two economists voiced pessimism about the outlook for the 17-member euro zone at a joint news conference at Princeton University in New Jersey.

Sims called the foundation of the monetary regime "precarious" because of the lack of a unified fiscal authority that can issue bonds and raise taxes. The departure of one or more nations from the union would not resolve that, he added. …

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