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2004 Nobel Prize for Economics Goes to Finn Kydland of Norway and Edward Prescott of the U.S. Norwegian, American win Nobel economics prize The Nobel prize for economic sciences honors the fundamental contributions made to macroeconomic analysis and the practice of monetary and fiscal policy in many countries. Today, The Royal Swedish Academy of Sciences said that two U.S. based professors, Finn E. Kydland of Norway and Edward C. Prescott of America were awarded the 2004 Nobel prize for their study of how economic policy drives global business cycles. The Norwegian and American, who have collaborated on a number of projects over the past three decades, will share the $1.36 million (10 million Swedish crowns) prize. Mr. Kydland is a Norwegian-born, 60-year-old professor who teaches at Carnegie Mellon University's Tepper School of Business in Pittsburgh, Pennsylvania. This year, he is also a visiting professor at the University of California at Santa Barbara. Kydland was born in Norway in 1943, and although he has worked and taught in the United States since the 1970s he remains a Norwegian citizen. In 1968, he received a B.S. from the Norwegian School of Economics and Business Administration. In 1973, he earned his Ph.D. from Carnegie Mellon (CMU). In 1973 he won the Alexander Henderson Award and in 1982-83 he was awarded the John Stauffer National Fellowship by the Hoover Institution. Kydland is the author of Business Cycle Theory (International Library of Critical Writings in Economics) (Oct 1995). Buy Products Related To This Story: Business Cycle Theory (International Library of Critical Writings in Economics) E. Elgar Pub. Co. Finn E. Kydland Barriers to Riches (Walras-Pareto Lectures) The MIT Press Stephen L. Parente, Edward C. Prescott Regarding becoming a Nobel laureate today, Kydland told Norway's NRK, "It is fantastic, mainly because this is the greatest honor I can get as an economist. The Nobel committee must have seen something worthwhile in my work. What is most important, is that other economists have built on my work." Kydland is the third Norwegian to win the Nobel Prize. He joins Ragnar Frisch who won it in 1969 and Trygve Haavelmo, the 1989 laureate. Edward C. Prescott was born in Glen Falls, New York, in 1940. In 1962, he received a B.A. in Mathematics from Swarthmore College. And in 1963, he received an M.S. in Operations Research from Case-Western Reserve University. He earned a doctorate from Carnegie Mellon University, six years before Kydland, in 1967. Prescott has won a number of prestigious awards and honors over the years, including winning a Guggenheim fellowship in 1974-75, becoming a fellow at the Econometric Society in 1980 and of the American Academy of Arts and Sciences in 1992. He also became an honorary economics laureate at the University of Rome and won the Erwin Plein Nemmers Prize in Economics in 2002. Prescott is the fifth American to receive the Nobel Prize since 2000. Today, Prescott, 63, teaches at Arizona State University in Tempe, Arizona, and is a senior monetary advisor for the Federal Reserve Bank of Minneapolis, Minnesota. Prescott is the author of two books: Barriers to Riches (Walras-Pareto Lectures) (Feb 2002). This work was co-authored with Stephen L. Parente. With Neil Wallace, he wrote Contractual Arrangements for Intertemporal Trade (Nov 1987). This book is currently not available through Amazon. Prescott is best known for his paper, "Time to Build and Aggregate Fluctuations," co-authored with Kydland, which seeks to better understand business cycle fluctuations. In two groundbreaking articles written in 1977 and in 1982, the authors showed that economic policymakers who have said they are in favor of low inflation but who cannot commit to a rule in advance will often inadvertently conduct a policy that will cause high inflation. According to "What You Should Know About Economics," the paper "is one of the most highly read journal articles from the last 30 years." "Their work has not only transformed economic research, but has also profoundly influenced the practice of economic policy in general, and monetary policy in particular," the academy said in its citation. It said the two men, who began their work in the 1960s, had "transformed the theory of business cycles by integrating it with the theory of economic growth." The work of Mr. Kydland and Mr. Prescott led to a fundamental re-thinking of the economic theories of British economist John Maynard Keynes, who said the Great Depression of the 1930s was caused primarily by a decline in demand by consumers and businesses. The Kydland-Prescott research found that shocks to the supply side, such as rising oil prices and declining productivity growth, also had a crucial impact on large-scale economic fluctuations. The theories of the two economists were considered a major breakthrough, which helped explain the 1970s phenomenon of "stagflation", when unemployment and inflation simultaneously affected Western economies. The Kydland-Prescott models are now used by central banks, international organizations, and other policy-makers to develop business-cycle forecasts. To these points Allan Meltzer, a Carnegie Mellon University economics professor who has written a history of the Federal Reserve said, "It is a very good choice. Their work has influenced a tremendous amount of additional research. What they did in studying the business cycle has contributed to thinking about the framework we use today for economic forecasting models. And their work on central banks has changed the way we look at the Fed." Last year, American Robert Engle and Briton Clive Granger won the prize for developing statistical tools that improved the forecasting of rates of economic growth, interest rates and stock prices. Past awards have recognized research on topics ranging from poverty and famine to how multinational corporations reap profits, and theories on how people choose jobs and the welfare losses caused by environmental catastrophes. The economics award was initiated in 1968 by the Swedish central bank in 1968. The economics prize is the only award not established in the will of Swedish industrialist Alfred Nobel, the inventor of dynamite. The medicine, physics, chemistry, literature and peace prizes were first awarded in 1901, while the economics prize was set up separately by the Swedish central bank in 1968. The Bank of Sweden Nobel Prizes are presented December 10th, the anniversary of the Nobel's death. For further details, go to: NobelPrize.org Here's to healthy, adventuresome, soulful and big picture living! ~ Jennifer King To send Mr. Prescott a note of congratulations, please write or call: Department of Economics W. P. Carey School of Business Arizona State University Tempe, AZ 85287-3806 Phone: 480-965-3531 Fax: 480-965-0748 Federal Reserve Bank of Minneapolis Research Department 90 Hennepin Avenue Minneapolis, MN 55480-0291 Phone: 612-204-5520 Fax: 612-204-5515 To send Mr. Kydland a note of congratulations, please write or call: Carnegie Mellon Unversity Tepper School of Business 5000 Forbes Avenue Pittsburgh, PA 15213 (412) 268-2268 Related Stories in RuggedElegantLiving.com: