Monday, 10 October 2011

Macro economics rules for the Nobel Economics winners

In these uncertain economic times the Nobel committee must have been struggling to find anyway to justify winning their economics prize for this year.

They have chosen two American economists Thomas Sargent and Christopher Sims for their empirical research on cause and effect in the macroeconomy".

In plain English that means how policy such as raising interest rates or cutting taxes affects macroeconomic variables such as GDP and inflation.

The two are based at Princeton University.

Sargent has examined the post-World War II era, when many countries initially tended to implement a high-inflation policy, but eventually introduced systematic changes in economic policy and reverted to a lower inflation rate whilst Sims has developed a method based on so-called vector autoregression to analyze how the economy is affected by temporary changes in economic policy and other factors.

George Osborne,take note.

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