2004-10-14
This is Gwen Outen with the VOA Special English Economics Report.
The winners of the Nobel prize in
economics this year are Finn Kydland of Norway and Edward Prescott
of the United States.
Mister Prescott is an adviser at the Federal Reserve Bank of
Minneapolis, Minnesota. He is also an Arizona State University
professor. Mister Kydland is a professor at Carnegie Mellon
University in Pittsburgh, Pennsylvania.
The prize recognizes their work
together on two studies. The first was published in nineteen
seventy-seven.
Before the nineteen seventies, economic problems were seen mainly
in terms of a lack of balance. Too much demand caused inflation. Too
much supply caused a recession.
Governments would take steps aggressively to re-balance supply
and demand. Low interest rates and increased government spending
would expand growth and employment. Then, if prices went up too
much, higher interest rates would ease inflation.
But in the seventies, many nations experienced both low
employment and high inflation at the same time. This was called
stagflation. And no one could explain it.
Finn Kydland and Edward Prescott showed that stagflation resulted
when policymakers did not do as they promised. Most governments say
they want high employment and low inflation. But, over time, events
can cause them not to follow their stated economic policy to support
these goals. This is called the time consistency problem.
The two economists published another study in nineteen
eighty-two. They developed ways to explain business cycles, times of
increase or decrease in economic activity. They showed how new
technology creates periods of economic growth and productivity.
Markets then make corrections which slow the growth. Wages
change. Investments change. People buy more or less of things. The
two economists showed how activities at this level govern an
economy. They also showed how a shock like an increase in oil prices
can affect business cycles.
Today, their work influences central bank officials and
policymakers around the world. Their award is officially called the
Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel.
The Royal Swedish Academy of Sciences presents the honor.
Edward Prescott and Finn Kydland will share almost one million
four hundred thousand dollars in prize money.
This VOA Special English Economics Report was written by Mario
Ritter. This is Gwen Outen.