American, Norwegian win Nobel prize

Art Pine and Trygve Meyer

Monday, Oct. 11, 2004 | 9:23 a.m.

American Edward C. Prescott and Norwegian Finn E. Kydland won this year's Nobel prize in economics for their work in identifying the driving forces behind business cycles.

Prescott, 63, an economics professor at Arizona State University, and Kydland, 60, a Norwegian-born economics professor at Carnegie Mellon University in Pittsburgh, will share a prize of $1.5 million, said the Royal Swedish Academy of Sciences, which selects the Nobel prize winners each year. The prize will be awarded formally at a ceremony in Stockholm on Dec. 10.

"It's a very good choice," said Allan Meltzer, a Carnegie Mellon University economics professor who has written a history of the Federal Reserve. "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."

Kydland, born in Norway, has lived and worked in the U.S. since his college days in the late 1960s. The two men have worked together on many of their major projects. Kydland is a visiting professor this year at the University of California in Santa Barbara.

The two men are best known for a 1982 paper entitled, "Time to Build and Aggregate Fluctuations," which established that business cycles stem from the economy's response to changes in investment and technological innovations that affect the economy's productivity.

Prescott and Kydland also wrote a paper in 1977, entitled "Rules vs. Discretion," that showed central banks should develop rules to help decide when to put aside their anti- inflation efforts in order to bolster economic growth. That formed the basis for later efforts to construct such policies.

Prescott received his bachelor's degree in mathematics from Swarthmore College in 1962, his master's degrees in operations research from Case-Western University in 1963 and his doctorate in economics from Carnegie Mellon in 1967, according to his Web site. He's also an adviser to the Federal Reserve Bank of Minneapolis.

Kydland received a bachelor's degree from the Norwegian School of Economics and Business Administration in 1968 and earned a doctorate from Carnegie Mellon in 1973.