Americans Thomas Sargent and Christopher Sims shared the 2011 Nobel prize in economics on Monday for providing ways to understand the impacts of policy changes or shocks such as surging oil prices on output, inflation or employment.
Sims, from Princeton University said their methods were “essential to finding our way out of this mess” which the global economy is now in.
The Royal Swedish Academy of Sciences, which made the award, said the 10 million crown ($1.5 million) prize recognised their “empirical research on cause and effect in the macroeconomy” and said their work laid the foundation for modern macroeconomic analysis.
“One of the main tasks of macroeconomic research is to comprehend how both shocks and systematic policy shifts affect macroeconomic variables in the short and long run,” the Academy said in a statement.
Sargent, 68, who is professor of economics and business at New York University, developed a mathematical model in his work and described it in a series of articles in the 1970s.
Sims, professor of economics and banking at Princeton, wrote an article in 1980 which introduced a new way of analysing data using a model called vector-autoregression.