Thomas Sargent and Christopher Sims were awarded the 2011 Nobel Prize in Economics this morning. Though both slipped under the radar of the Kellogg School/NU poll, no one is surprised that the pair are sharing this year’s prize.
“Everyone has been expecting that they would be getting the prize,” Larry Christiano, a professor of economics, told me. “It’s not surprising that they finally did get it. If anything, it’s a little bit late.”
“Sims and Sargent have been central to the development of much of modern day macroeconomics,” said Arvind Krishnamurthy, a professor of finance. “Almost all of macro research carried out today owes to ideas from their work.”
“In macroeconomics we cannot run experiments, so we have to try to figure out cause and effect from the data that we have available,” said Sergio Rebelo, a professor of finance. “Both Sargent and Sims contributed tools that are useful to undertake this difficult task.”
Sargent’s and Sims’s work is related but complementary to each other, as is often the case with Nobel awards in economics. Sargent was one of the proponents of the rational expectations revolution that started back int he 1970s. The notion of rational actors is fundamental to most macroeconomic and game theoretic models these days. Sims’s developed statistical tools in the 1980s which he claimed at the time would be incredibly useful in analyzing macroeconomic conditions. “He was abundantly right about that,” said Christiano, who was was advised by Sargent during his PhD.
The techniques Sargent and Sims developed are used extensively in both academic and policy discussions, said Giorgio Primiceri, an associate professor of economics. “They are essentially the fathers of modern macroeconometrics.”
Though the Nobel committee cited work that done decades ago, both Sargent and Sims remain influential in current scholarly debates. “Both continue to be really important figures in macroeconomics now,” Christiano said. Sims’s new research has focused on government spending, monetary policy, and how the two interact as well as a notion called rational inattention. Rational inattention is the idea that economic actors cannot process all available information when making a decision and must make a choice of which information to use.
“His contributions go far beyond his research,” said Jonathan Parker, a professor of finance and former colleague of Sims. “A Nobel prize could not be given to a nicer person. In academe, where time is short and egos can get tangled up in research, Chris took time with people, kept debates about the facts not the personalities, and enjoyed advising students.”
Like Sims, Sargent continues to push the boundaries of research. “I would be hard pressed to name an area of macroeconomics where a Sargent paper is not one of the key contributions,” Parker said. And rather than defend his old work on rational expectations, Christiano said, Sargent continues to challenge the way economists think about expectations in economic models. “Sargent is running a little counter revolution to his rational expectation revolution.”
Both laureates are “still working on path-breaking stuff today,” Christiano said.
“I cannot think of anyone in applied macroeconomics that deserves the prize more than Sargent and Sims,” Primiceri said. “They are both great role models for the younger generation of macroeconomists,” Rebelo added.