Nobel For Economics Awarded To Two U.S. Professors

Two professors from U.S. universities shared the Nobel Prize in economics. Thomas Sargent of New York University, and Christopher Sims of Princeton were announced Monday as the winners. The two are sharing the prize for their research into policy tools and their effects on the economy.

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The Nobel Prize for Economics was awarded today to two Americans, Christopher Sims of Princeton University and Thomas Sargent of New York University. The two were cited for their pioneering research into the relationship between government and economic activity.

As NPR's Jim Zarroli reports now, their work shed new light on how policy decisions can and can't stimulate growth.

JIM ZARROLI, BYLINE: The phone rang before dawn at Christopher Simmons'(ph) house this morning. At first, he and his wife figured it was a prank call and went back to sleep, but Sims said, a few minutes later, it rang again.

CHRISTOPHER SIMS: Then they called and Kathy(ph) said, well, if it is a prank, they're doing a pretty good Swedish accent.

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ZARROLI: Sims was told he will share the million and a half dollar prize with his long time colleague, Thomas Sargent. Both men studied together at Harvard and ended up on the faculty at the University of Minnesota. Now, they're teaching a class together at Princeton, but Sims said they're not exactly collaborators.

SIMS: I'm not so sure it's right to say we have worked together. It's more we have a series of continuing arguments, many of which are still going on as I slowly persuade him of the error of his earlier positions.

ZARROLI: But the two have focused on the same field of research over the years and the Nobel committee said their work has been complementary. Sims and Sargent were instrumental in developing new computer models that helped explain how the economy is affected by government and central bank policy.

Robert Shiller of Yale says before they came along, economists used models to understand how the economy worked, but the models were often crude.

ROBERT SHILLER: The way they represented how people behave didn't take account of the fact that people think. They're not as mechanical, as knee-jerk as was assumed by the previous models.

ZARROLI: For instance, economists long assumed that countries could stimulate growth by unleashing inflation. Wages would rise. People would spend more and demand for goods and services would grow. But Shiller says, at some point, people catch on to what's happening.

SHILLER: You know, eventually, people will realize that we're living in high inflation and they won't be stimulated by it anymore. It'll wear out.

ZARROLI: And once people in businesses come to expect higher and higher prices, they do things to counteract it, like not spending as much or demanding higher wages, which can lead to unforeseen economic problems.

Over the years, Sims and Sargent have looked into the ways that human expectations are affected by economic policy and vice versa, something that economic models traditionally missed. Here was Sargent at a press conference today.

THOMAS SARGENT: We build models where people's expectations about what the government is going to do are really important in influencing events and those expectations can't be just arbitrary because they depend partly on what the government's going to do. And what the government's going to do partly depends on those expectations.

ZARROLI: The Nobel committee said the field of research pioneered by Sims and Sargent has been widely used by central bankers and government policymakers. It helps them understand the real impact of their decisions on economic growth and that's especially relevant right now, at a time when governments and central banks all over the world are pondering ways to get their economies moving again.

Jim Zarroli, NPR News, New York.

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