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Two Americans win Nobel Prize in economics

Marketplace Staff Oct 10, 2011

Two Americans win Nobel Prize in economics

Marketplace Staff Oct 10, 2011

Steve Chiotakis: A couple of American economists will share in this year’s Nobel Prize in Economics. Christopher Sims and Thomas Sargent are both academics and they’ll share in the $1.5 million prize. Both studied the correlation of the global economy and the way central banks and governments deal with it through policy.

Marketplace’s Alisa Roth is with us live from New York with the latest on the winners and the things that they researched. Good morning Alisa.

Alisa Roth: Good morning.

Chiotakis: So let’s talk about these winners.

Roth: Well, they’re both 68. They actually worked on this stuff independently, but their research is so strongly connected that the Nobel committee decided they should get the award together.

Thomas Sargent is a professor here in New York, at NYU and Christopher Sims is now a professor at Princeton.

Chiotakis: So what work is the committee citing, what are they talking about?

Roth: Well, in very broad terms, as you said, it looks at how anything on the economic policy side –so, raising interest rates, or changes government spending– and how that affects the economy.

Sargent’s work takes a longer view, looking at what effect the government has — so that could be Congress and its spending decisions or the Fed and how it sets monetary policies. For example, it could be what happens in the economy when the government sets a new inflation target. But he’s also used it to explore more theoretical ideas, like how could a new policy end up affecting the economy. And Sargent’s research can also be used to analyze how changes in economic policy force households and businesses to adjust their behavior.

Sims’ work looks at shorter-term, more abrupt, changes. So something like whether changing the interest rates cause inflation to change, you know, go up or down, or if the government adjusts interest rates because it thinks the inflation rate is going to change.

Chiotakis: Now this sounds like it has applications to the real world, right?

Roth: Oh, very much so. In fact, Dr. Sims told reporters today that the work could help us understand the current the current economic crisis.

Christopher Sims: I don’t think my research and methods have any simple, direct implication for the certain situation. I think they point to ways to try to unravel why our serious problems developed.

Roth: And by the way, speaking of real-world implications, the winners say they haven’t decided where they’re going to invest their prize money yet.

Chiotakis: All right, Marketplace’s Alicia Roth reporting from New York. Alicia, thanks.

Roth: You’re welcome.

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