Thomas J. Sargent of New York University and Christopher A. Sims of Princeton University were awarded the prize "for their empirical research on cause and effect in the macroeconomy," the committee said in a release issued Monday from Stockholm, Sweden.
"This year's laureates in economic sciences have developed methods for answering ... questions regarding the causal relationship between economic policy and different macroeconomic variables such as GDP [gross domestic product], inflation, employment and investments," the release said.
Sargent demonstrated how structural macroeconometrics can be used to analyze permanent changes in economic policy, which could be applied to study macroeconomic relationships when households and firms adjust their expectations parallel to economic developments, the committee said.
Sims developed a method based on so-called vector auto-regression to analyze how the economy is affected by temporary changes in policy and other factors.
While the two worked independently, their contributions complement each other in several ways, the committee said. Their work in the 1970s and 1980s has been adopted by researchers and policymakers worldwide, and the methods they developed remain essential in macroeconomic analysis.
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