New York An American and a Norwegian won the 2004 Nobel Memorial Prize in economic sciences Monday for research on how government policies affect economies around the world and why supply-side shocks like high oil prices can dampen business cycles.
The work by Norwegian Finn Kydland and Edward Prescott, a professor at Arizona State University at Tempe, has led to reforms at many of the world's central banks, the citation said. Their research also has given academics better tools for understanding what causes economies to boom or go into recession, it added.
The two professors, who both earned their doctorates at Carnegie Mellon University in Pittsburgh, have collaborated on work since the 1970s. They will share an award worth about $1.3 million.
Kydland, who is 60, teaches at Carnegie Mellon and at the University of California at Santa Barbara. Prescott, 63, has taught at a number of universities, including the University of Minnesota, the University of Chicago and Northwestern University. Besides teaching at Arizona State, he also serves as an adviser to the Federal Reserve Bank of Minneapolis.
The Royal Swedish Academy of Sciences in Stockholm, which oversees the prize, said that the professors' research showed that governments and central banks could be more effective if they adopted consistent, long-term rules and followed them. It was published in the late 1970s when many Western economies were shifting from one policy to another as they grappled with both slow growth and high inflation.
"The research shifted the practical discussion of economic policy away from isolated policy measures (and) towards the institutions of policymaking, a shift that has largely influenced the reforms of central banks and the design of monetary policy in many countries over the last decade," the academy said.
The academy also praised the pair for "transforming the theory of business cycles by integrating it with the theory of economic growth."
While most economists at the time looked at how changes in demand like consumer spending affect the economy, Kydland and Prescott looked at supply-side changes, such as advances in technology or changes in oil prices as driving forces in business cycles.
Prescott's 2000 book, "Barriers to Riches," made the argument that a key reason for the disparity in the standard of living among countries worldwide is impediments to adopting technology.