The Becker Friedman Institute and the University of Chicago congratulate colleagues Thomas J. Sargent and Christopher Sims, who were awarded the 2011 Nobel Prize in Economics Sciences “for their empirical research on cause and effect in the macroeconomy.”
This year's laureates in economic sciences were honored for developing methods to explore questions about how policies that change interest rates, inflation targets, or tax rates influence macroeconomic variables such as GDP, inflation, employment and investments.
“I am delighted by this well-deserved recognition for Tom Sargent and Chris Sims,” said Lars Peter Hansen, research director of the Becker Friedman Institute and a former student and research assistant for both new laureates. "They have made seminal contributions to the fields of macroeconomics and time series econometrics.
“Among many other insights and contributions, their work helps us understand the effects of monetary policy on economic activity. Methods they developed have inspired a large and influential body of research, including my own."
Sargent, the William R. Berkley Professor of Economics and Business at New York University, is currently a Distinguished Fellow at the Becker Friedman Institute and a leading contributor to the institute's Fiscal Imbalance Initiative. Sims is the Harold H. Hem ’20 Professor of Economics and Banking at Princeton University.
Both received their Ph.D.s from Harvard University in 1968 and served on the University of Minnesota economics faculty together for many years. Sims was Hansen's dissertation adviser and Sargent served on his dissertation committee. Harold Uhlig, chair of the Economics Department and a member of the Institute's Governing Committee, also studied with Sims.
“This is a Nobel award squarely in the mainstream of our profession,” Uhlig said. “They both have made fundamental contributions to our science, in particular on thinking about cause and effects of macroeconomic shocks, and teaching an entire generation to think about macroeconomics in terms of a dynamic, stochastic system.”
Starting in the 1970’s, Sargent and Sims made series of remarkable contributions by bringing to bear important insights from economic dynamics to give meaningful interpretations of the time series data, Hansen said. “These insights come only with rigorous economic modeling and careful empirical analysis. Sargent and Sims approached this task in different but complementary ways.”
Sargent has shown how structural macroeconometrics can be used to analyze permanent changes in economic policy. This method can be applied to study macroeconomic relationships when households and firms adjust their expectations concurrently with economic developments.
“Back in the 1970s, Tom was the central figure in translating the idea of rational expectations into operational econometric models,” said Robert Lucas, the John Dewey Distinguished Service Professor in Economics, who won the Nobel Prize in 1995 for developing the rational expectations hypothesis.
Sargent explored the implications of his ideas empirically; for example, he studied European hyperinflations and fiscal policies historically used by European countries to finance wars.
Sargent was David Rockefeller Professor of Economics at the University of Chicago from 1992 to 1998 and a Ford Foundation Visiting Research Professor in Economics from 1976 to 1977. He has coauthored three books and more than 25 articles with Hansen.
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. Sims and other researchers have applied this method to examine, for instance, the effects of an increase in the interest rate set by a central bank.
Sims is one of the leaders in rethinking how monetary policy should be modeled and reconsidering the channels by which monetary policy influences economic aggregates. Both Sims and Sargent challenged so-called monetarist views by showing why considerations of fiscal policy and its interactions with monetary policy are crucial to understanding the determination of prices and inflation.
Nobel Prize press release»
Sargent Nobel Prize lecture text and video »
Sims Nobel Prize lecture and video »
