The University of Chicago is nearly as dominant in October as the New York Yankees, but this was not the year (Go Sox!). This year’s prize went to Finn Kydland of Norway (Carnegie Mellon University and the University of California) and Edward Prescott of the United States (Arizona State University and the Federal Reserve Bank of Minneapolis).
Their breakthrough publication was “Time to Build and Aggregate Fluctuations,” Econometrica 50 (November 1982): 1345-70. Econometrica’s archives are available only to paid subscribers, but there is a copy at the Minneapolis Fed’s website, which also has many other articles by Prescott, some with Kydland. Central banking policy, not surprisingly, was another area of study for them, and “Rules Rather Than Discretion: The Inconsistency of Optimal Plans” (Journal of Political Economy 85 (June 1977): 473-91) extended and quantified viagragen Friedman’s insight of monetary policy as a game between central bankers and rational actors in the economy, with the rational expectations of the players serving to anticipate and subvert the intentions of central policy.
“Time to Build” is considered to be their most important work. It established technological disruptions as one of the drivers of the business cycle, with the lag time of bringing innovative capital assets on line contributing to the uneven effects. This is essentially a supply-side factor in business cycle analysis, and reinforces the futility of monetary fine-tuning.
Does anyone else notice the similarity to Schumpeter’s thoughts on creative destruction?
Update: I finally found an extract of the Nobel committee’s citation, which gives a layman’s explanation of their work and leaves all the horrid math out.