Edward C. Prescott

Last updated
Edward C. Prescott
Edward C Prescott 2015.jpg
Prescott in 2015
Born (1940-12-26) December 26, 1940 (age 78)
NationalityUnited States
Institution Australian National University (ANU)
Arizona State University
Carnegie Mellon University
Federal Reserve Bank of Minneapolis
Federal Reserve Bank of Richmond
Northwestern University
University of Minnesota
University of Pennsylvania
University of California, Santa Barbara
University of Chicago
New York University
School or
tradition
New classical economics
Alma mater Swarthmore College
Case Western Reserve University
Carnegie Mellon University
Doctoral
advisor
Michael C. Lovell
Doctoral
students
Costas Azariadis
Gary Hansen
Finn Kydland
V. V. Chari
Fernando Alvarez [1]
Influences Morris H. DeGroot
Robert Lucas, Jr.
John Muth
Contributions Real Business Cycle theory
Time consistency in economic policy
Awards Nobel Prize in Economics (2004)
Information at IDEAS / RePEc

Edward Christian Prescott (born December 26, 1940) is an American economist. He received the Nobel Memorial Prize in Economics in 2004, sharing the award with Finn E. Kydland, "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles". This research was primarily conducted while both Kydland and Prescott were affiliated with the Graduate School of Industrial Administration (now Tepper School of Business) at Carnegie Mellon University. According to the IDEAS/RePEc rankings, he is the 19th most widely cited economist in the world today. [2] In August 2014, Prescott was appointed as an Adjunct Distinguished Economic Professor at the Australian National University (ANU) in Canberra, Australia.

Contents

Biography

Early life

Prescott was born in Glens Falls, New York, to Mathilde Helwig Prescott and William Clyde Prescott. In 1962, he received his bachelor's degree in mathematics from Swarthmore College, where he was a member of the Delta Upsilon fraternity. He then received a master's degree from Case Western Reserve University in operations research in 1963, and a PhD in Economics at Carnegie Mellon University in 1967.

Career

From 1966 to 1971, Prescott taught at the University of Pennsylvania. He then returned to Carnegie Mellon until 1980, when he moved to the University of Minnesota, where he taught until 2003. In 1978, he was a visiting professor at the University of Chicago, where he was named a Ford Foundation Research Professor. In the following year, he visited Northwestern University and stayed there until 1982. [3] [4] Since 2003, he has been teaching at Arizona State University.

Prescott has been an economic advisor at the Federal Reserve Bank of Minneapolis since 1981. [5] In 2004, he held the Maxwell and Mary Pellish Chair in Economics at the University of California, Santa Barbara. [6] In 2006, he held the Shinsei Bank Visiting Professorship at New York University. In August 2014, Prescott was appointed an Adjunct Distinguished Professor at Research School of Economics (RSE) of the Australian National University. [7]

The Research Papers in Economics project ranked him as the 19th most influential economist in the world as of August 2012 based on his academic contributions. [2] Currently working as an economist at the Federal Reserve Bank of Minneapolis and as a professor at Arizona State University's W.P. Carey School of Business, he is a major figure in macroeconomics, especially the theories of business cycles and general equilibrium. In his "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," published in 1977 with Finn E. Kydland, he analyzed whether central banks should have strict numerical targets or be allowed to use their discretion in setting monetary policy. He is also well known for his work on the Hodrick–Prescott filter, used to smooth fluctuations in a time series.

Nobel Prize

Edward Prescott and Finn Kydland Nobel prize for economics was based on two papers Prescott and Kydland wrote. In the first paper, written in 1977 "Rules Rather than Discretion: : The inconsistency of optimal planning" Prescott and Kydland argue that purpose and goals of economic planning and policy is to trigger a desired response from the economy. However, Prescott and Kydland realized that these sectors are made up of individuals, individuals who make assumptions and predictions about the future. As Prescott and Kydland stated "Even if there is a fixed and agreed upon social objective function and policy makers know the timing and magnitude of the effects of their actions... correct evaluation of the end-of-point position does not result in the social objective being maximized." Prescott and Kyland were pointing out that agents in the economy already factor into their decision making the assumed response by policy makers to a given economic climate.

Additionally Prescott and Kydland felt that the policy makers due to their relationship with government suffered from a credibility issue. The reason for this dynamic is that the political process is designed to fix problems and benefit its citizens today. Prescott and Kydland demonstrated this with a simple yet convincing example. In this example they take an area that has been shown likely to flood (a flood plain) and the government has stated that the "socially optimal outcome" is to not have houses be built in that area and therefore the government states that it will not provide flood protection (dams, levees, and flood insurance) rational agents will not live in that area. However, rational agents are forward planning creatures and know that if they and others build houses in the flood plain the government which makes decisions based on current situations will then provide flood protection in the future. While Prescott never uses these words he is describing a moral hazard. [8]

The second paper, written in 1982, "Time to Build and Aggregate Fluctuations" Prescott and Kydland argued that shifts in supply typically caused by changes and improvements in technology accounted "Not only long term increases in living standards but also to many of the short term fluctuations in business cycles." To study this hypothesis Prescott established a model to study the change in output, investment, consumption, labor productivity, and employment, between the end of the Second World War and 1980. Using this model the two economists were able to correlate 70% of the fluctuation in output to changes and growth in technology. [9] [10] Their main contribution, however, was the way of modeling macroeconomic variables with microfoundations.

Political activity

In January 2009 Prescott, along with more than 250 other economists and professors, [11] signed an open letter to President Barack Obama opposing the passage of the American Recovery and Reinvestment Act. The letter was sponsored by libertarian think tank, the Cato Institute, and was printed as a paid advertisement in several newspapers including The New York Times and the Arizona Republic . [12]

His writings more recently have focused on the negative effect of taxes on the economy in Europe.

Honours and awards

Related Research Articles

Econometrica is a peer-reviewed academic journal of economics, publishing articles in many areas of economics, especially econometrics. It is published by Wiley-Blackwell on behalf of the Econometric Society. The current editor-in-chief is Joel Sobel.

A macroeconomic model is an analytical tool designed to describe the operation of the problems of economy of a country or a region. These models are usually designed to examine the comparative statics and dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the level of prices.

Finn E. Kydland Norwegian economist

Finn Erling Kydland is a Norwegian economist known for his contributions to business cycle theory. He is the Henley Professor of Economics at the University of California, Santa Barbara. He also holds the Richard P. Simmons Distinguished Professorship at the Tepper School of Business of Carnegie Mellon University, where he earned his Ph.D., and a part-time position at the Norwegian School of Economics (NHH). Kydland was a co-recipient of the 2004 Nobel Memorial Prize in Economics, with Edward C. Prescott, "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles."

Nancy Laura Stokey is the Frederick Henry Prince Distinguished Service Professor of Economics at the University of Chicago where she began in 1990 and focuses particularly on mathematical economics. She earned her BA in economics from the University of Pennsylvania in 1972 and her PhD from Harvard University in 1978, under the direction of thesis advisor Kenneth Arrow. She is a Fellow of the Econometric Society, the American Academy of Arts and Sciences and the National Academy of Sciences. She previously served as a co editor of Econometrica and was a member of the Expert Panel of the Copenhagen Consensus. She received her Honorary Doctor of Laws (L.L.D) in 2012 from the University of Western Ontario. Much of her work has been done by digesting economic dynamics, which most of this work is done as an expositor. She spent a great deal of time recently researching growth theory, economic dynamics, as well as fiscal and monetary policy.

Constantine Christos "Costas" Azariadis is a macroeconomist born in Athens, Greece. He has worked on numerous topics, such as labor markets, business cycles, and economic growth and development. Azariadis originated and developed implicit contract theory.

Edward James Green was an American economist best known for his contributions to the theory of dynamic contracts. Green received his Ph.D. from Carnegie Mellon University in 1977. His dissertation won him the Alexander Henderson Award for excellence in economics. He taught at Princeton University and worked at the Federal Reserve Bank of Minneapolis, and the Federal Reserve Bank of Chicago, and was Professor of Economics at Pennsylvania State University.

Thomas J. Sargent American economist

Thomas John "Tom" Sargent is an American economist, who is currently the W.R. Berkley Professor of Economics and Business at New York University. He specializes in the fields of macroeconomics, monetary economics and time series econometrics. As of 2014, he ranks fourteenth among the most cited economists in the world. He was awarded the Nobel Memorial Prize in Economics in 2011 together with Christopher A. Sims for their "empirical research on cause and effect in the macroeconomy".

Scott John Freeman was an American economist. He received his undergraduate degree from the University of Wisconsin–Madison and earned his Ph.D. from the University of Minnesota in 1983. Between undergraduate and graduate school he worked for the Peace Corps in Africa.

Süleyman Başak is a financial economist of Turkish Cypriot origin. He is Professor at the Institute of Finance and Accounting of the London Business School, an MBA-granting part of the University of London and has previously taught at the Wharton School of the University of Pennsylvania until June 30, 2000, where he received the David W. Hauck Award for Outstanding Teaching in 1997, and an honourable mention in 1998 and 1999 for the Geewax, Terker Prize for Investment Research.

Varadarajan Venkata Chari is an Indian-American economist and professor of economics at the University of Minnesota.

Dynamic stochastic general equilibrium modeling is a method in macroeconomics that attempts to explain economic phenomena, such as economic growth and business cycles, and the effects of economic policy, through econometric models based on applied general equilibrium theory and microeconomic principles.

Michael Dean Woodford is an American macroeconomist and monetary theorist who currently teaches at Columbia University.

Rajnish Mehra is an Indian American economist. He currently holds the Deutsche Bank Luxembourg Chair at the University of Luxembourg and is a research associate of the NBER. His research interests include capital markets, asset pricing and growth theory.

The Bernacer Prize is awarded annually to European young economists who have made outstanding contributions in the fields of macroeconomics and finance. The prize is named after Germán Bernácer, an early Spanish macroeconomist.

Neil Wallace is an American economist and professor at Pennsylvania State University. Wallace is considered one of the main proponents of new classical macroeconomics.

Lawrence Joseph Christiano is an American economist and researcher. He is the Alfred W. Chase Chair in Business Institutions, chairman of the Department of Economics and professor of economics at Northwestern University. He has also taught at Carnegie Mellon University and the University of Chicago.

Real business-cycle theory is a class of new classical macroeconomics models in which business-cycle fluctuations to a large extent can be accounted for by real shocks. Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

Heller-Hurwicz Economics Institute

The Heller-Hurwicz Economics Institute was launched in 2010 in order to promote socioeconomic research.

Kjetil Storesletten is a Norwegian economist. He is a professor of economics at the University of Oslo. Between 2009 and 2012 he was a monetary advisor to the Federal Reserve Bank of Minneapolis.

Ellen McGrattan is an American macroeconomist who is Professor of Economics at the University of Minnesota and director of the Heller-Hurwicz Economics Institute, and consults for the Federal Reserve Bank of Minneapolis.

References

  1. Timothy J. Kehoe Workshop
  2. 1 2 "Economist Rankings at IDEAS – Top 10% Authors, as of February 2013". Research Papers in Economics. February 2013. Retrieved March 9, 2013.
  3. "Edward C. Prescott – Autobiography". Nobelprize.org. Retrieved October 19, 2010.
  4. "Staff Faculty – Directory – W. P. Carey School of Business". Wpcarey.asu.edu. July 8, 2010. Retrieved October 19, 2010.
  5. "Staff Details: Edward C. Prescott, Senior Monetary Advisor". Federal Reserve Bank of Minneapolis. Retrieved 1 September 2014.
  6. "Finn E. Kydland – 2004 Nobel Prize in Economics". Ucsb.edu. Archived from the original on October 15, 2010. Retrieved October 19, 2010.
  7. Australian National University
  8. https://www.minneapolisfed.org/research/prescott/papers/timetobuild.pdf
  9. "web-041003.dvi" (PDF). Archived from the original (PDF) on June 26, 2009. Retrieved October 19, 2010.
  10. https://www.minneapolisfed.org/research/prescott/papers/rulesdiscretion.pdf
  11. https://web.archive.org/web/20090203170743/https://cato.org/special/stimulus09/cato_stimulus.pdf
  12. "House OKs Stimulus Without Any Votes From Republicans". Archived from the original on January 30, 2009. Retrieved 2009-02-18.CS1 maint: BOT: original-url status unknown (link)

Further reading

Awards
Preceded by
Robert F. Engle III
Clive W.J. Granger
Laureate of the Nobel Memorial Prize in Economics
2004
Served alongside: Finn E. Kydland
Succeeded by
Robert J. Aumann
Thomas C. Schelling