Edward C. Prescott

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.

Edward C. Prescott
Edward C Prescott 2015
Prescott in 2015
BornDecember 26, 1940 (age 78)
NationalityUnited States
InstitutionAustralian 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 materSwarthmore 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]
InfluencesMorris H. DeGroot
Robert Lucas, Jr.
John Muth
ContributionsReal Business Cycle theory
Time consistency in economic policy
AwardsNobel Prize in Economics (2004)
Information at IDEAS / RePEc

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

References

  1. ^ Timothy J. Kehoe Workshop
  2. ^ a b "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. 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. ^ http://www.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

  • Lucas, Robert E, Jr.; Prescott, Edward C. (1971). "Investment Under Uncertainty". Econometrica. 39 (5): 659–681. doi:10.2307/1909571. JSTOR 1909571.CS1 maint: Multiple names: authors list (link)
  • Kehoe, T. J., and E. C. Prescott, editors, Great Depressions of the Twentieth Century, Federal Reserve Bank of Minneapolis, 2007.
  • Kydland, F., and E. C. Prescott (1977). "Rules Rather than Discretion: The Inconsistency of Optimal Plans". Journal of Political Economy: 473–492. CiteSeerX 10.1.1.603.6853. doi:10.1086/260580.CS1 maint: Multiple names: authors list (link)
  • Prescott, Edward C.; Mehra, Rajnish (1980). "Recursive Competitive Equilibrium: The Case of Homogeneous Households". Econometrica. 48 (6): 1365–79. doi:10.2307/1912812. JSTOR 1912812.
  • Kydland, Finn; E. C. Prescott (1982). "Time to Build and Aggregate Fluctuations". Econometrica. 50 (6): 1345–1370. doi:10.2307/1913386. JSTOR 1913386.
  • Mehra, Rajnish; Edward C. Prescott (1985). "The Equity Premium: A Puzzle" (PDF). Journal of Monetary Economics. 15 (2): 145–161. doi:10.1016/0304-3932(85)90061-3.
  • Kydland, Finn; E. C. Prescott (1990). "Business Cycles: Real Facts and a Monetary Myth". Federal Reserve Bank of Minneapolis Quarterly Review: 3–18.
  • Prescott, Edward C. 'More Time on the Job', in The 4% Solution: Unleashing the Economic Growth America Needs, edited by Brendan Miniter. New York: Crown Business. 2012.
  • Farquhar, Elizabeth (Summer 2006). "Power of the Prize". ASU Research Magazine: 46–48.

External links

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
Charles Plosser

Charles Irving Plosser (; born September 19, 1948) is a former president of the Federal Reserve Bank of Philadelphia who served from August 1, 2006 to March 1, 2015. An academic macroeconomist, he is well known for his work on real business cycles, a term which he and John B. Long, Jr. coined. Specifically, he wrote along with Charles R. Nelson in 1982 an influential work entitled "Trends and Random Walks in Macroeconomic Time Series" in which they dealt with the hypothesis of permanent shocks affecting the aggregate product (GDP).

Economic Theory (journal)

Economic Theory is a peer-reviewed academic journal that focuses on theoretical economics, particularly social choice, general equilibrium theory, and game theory. Mathematically rigorous articles are also published in the fields of experimental economics, public economics, international economics, development economics, and industrial organisation.

The journal is the official journal of the Society for the Advancement of Economic Theory. Both the society and the journal were founded by Charalambos D. Aliprantis, David Cass, Douglas Gale, Mukul Majumdar, Edward C. Prescott, Nicholas C. Yannelis, and Yves Younes.

Equity premium puzzle

The equity premium puzzle refers to the inability of an important class of economic models to explain the average premium of a well-diversified U.S. equity portfolio over U.S. Treasury Bills observed for more than 100 years. The term was coined by Rajnish Mehra and Edward C. Prescott in a study published in 1985 titled The Equity Premium: A Puzzle,. An earlier version of the paper was published in 1982 under the title A test of the intertemporal asset pricing model. The authors found that a standard general equilibrium model, calibrated to display key U.S. business cycle fluctuations, generated an equity premium of less than 1% for reasonable risk aversion levels. This result stood in sharp contrast with the average equity premium of 6% observed during the historical period.

In 1982, Robert J. Shiller published the first calculation that showed that either a large risk aversion coefficient or counterfactually large consumption variability was required to explain the means and variances of asset returns. Azeredo (2014) shows, however, that increasing the risk aversion level may produce a negative equity premium in an Arrow-Debreu economy constructed to mimic the persistence in U.S. consumption growth observed in the data since 1929.The intuitive notion that stocks are much riskier than bonds is not a sufficient explanation of the observation that the magnitude of the disparity between the two returns, the equity risk premium (ERP), is so great that it implies an implausibly high level of investor risk aversion that is fundamentally incompatible with other branches of economics, particularly macroeconomics and financial economics.

The process of calculating the equity risk premium, and selection of the data used, is highly subjective to the study in question, but is generally accepted to be in the range of 3–7% in the long-run. Dimson et al. calculated a premium of "around 3–3.5% on a geometric mean basis" for global equity markets during 1900–2005 (2006). However, over any one decade, the premium shows great variability—from over 19% in the 1950s to 0.3% in the 1970s.

To quantify the level of risk aversion implied if these figures represented the expected outperformance of equities over bonds, investors would prefer a certain payoff of $51,300 to a 50/50 bet paying either $50,000 or $100,000.The puzzle has led to an extensive research effort in both macroeconomics and finance. So far a range of useful theoretical tools and numerically plausible explanations have been presented, but no one solution is generally accepted by economists.

Erwin Plein Nemmers Prize in Economics

The Erwin Plein Nemmers Prize in Economics is awarded biennially from Northwestern University. It was initially endowed along with a companion prize, the Frederic Esser Nemmers Prize in Mathematics. Both are part a $14 million donation from the Nemmers brothers, who envisioned creating an award that would be as prestigious as the Nobel prize. Seven out of the past 11 Nemmers economics prize winners have gone on to win a Nobel Prize : Peter Diamond, Thomas J. Sargent, Robert Aumann, Daniel McFadden, Edward C. Prescott, Lars Peter Hansen, and, most recently, Jean Tirole.

Those who already have won a Nobel Prize are ineligible to receive a Nemmers prize. The Nemmers prizes are given in recognition of major contributions to new knowledge or the development of significant new modes of analysis in the respective disciplines. Currently, the prize carries a $200,000 stipend, among the largest monetary awards in the United States for outstanding achievements in economics.

Finn E. Kydland

Finn Erling Kydland (born 1 December 1943) 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."

Hodrick–Prescott filter

The Hodrick–Prescott filter (also known as Hodrick–Prescott decomposition) is a mathematical tool used in macroeconomics, especially in real business cycle theory, to remove the cyclical component of a time series from raw data. It is used to obtain a smoothed-curve representation of a time series, one that is more sensitive to long-term than to short-term fluctuations. The adjustment of the sensitivity of the trend to short-term fluctuations is achieved by modifying a multiplier . The filter was popularized in the field of economics in the 1990s by economists Robert J. Hodrick and Nobel Memorial Prize winner Edward C. Prescott. However, it was first proposed much earlier by E. T. Whittaker in 1923.

International Economic Review

The International Economic Review, (IER) is a quarterly peer-reviewed scientific journal in economics published by the Economics Department of the University of Pennsylvania and Osaka University. The journal's focus is wide and includes many areas of economics, including econometrics, economic theory, macroeconomics, and applied economics.

IER was started in 1960 by Michio Morishima, at Osaka University's Institute of Social Economic Research (ISER), and Lawrence R. Klein, at the University of Pennsylvania's Wharton School and Department of Economics. The Kansai Economic Federation of Osaka materially and financially supported the IER at its initial stages. In the present, the IER is run as a non-profit joint academic venture between ISER and the Department of Economics at the University of Pennsylvania.

The journal is currently edited by Harold L. Cole of the Pennsylvania Editorial Office and co-edited by Charles Yuji Horioka of the Osaka Editorial Office. The chair of the review panel is currently Dr Bilbo Hesselmeir.

It is considered one of the leading journals in economics in the world.

John Muth

John Fraser Muth (; September 27, 1930 – October 23, 2005) was an American economist. He is "the father of the rational expectations revolution in economics", primarily due to his article "Rational Expectations and the Theory of Price Movements" from 1961.

Muth earned his Ph.D. in mathematical economics from Carnegie Mellon University, and was in 1954 the first recipient of the Alexander Henderson Award. He was affiliated with Carnegie Mellon as a research associate from 1956 until 1959, as an assistant professor from 1959 to 1962, and as an associate professor without tenure from 1962 to 1964. He was a full professor at Michigan State University from 1964 to 1969 and a full professor at Indiana University from 1969 until his retirement in 1994.

Muth asserted that expectations "are essentially the same as the predictions of the relevant economic theory." Although he formulated the rational expectations principle in the context of microeconomics it has subsequently become associated with macroeconomics and the work of Robert Lucas, Jr., Finn E. Kydland, Edward C. Prescott, Neil Wallace, Thomas J. Sargent, and others.

Journal of Political Economy

The Journal of Political Economy is a bimonthly peer-reviewed academic journal published by the University of Chicago Press. It covers both theoretical and empirical economics. It was established in 1892 by James Laurence Laughlin.Its current editor-in-chief is Harald Uhlig (University of Chicago).

List of Nobel laureates affiliated with the University of California, Santa Barbara

The Nobel Prizes are awarded annually by the Royal Swedish Academy of Sciences, the Karolinska Institute, and the Norwegian Nobel Committee to individuals who make outstanding contributions in the fields of chemistry, physics, literature, peace, and physiology or medicine. They were established by the 1895 will of Alfred Nobel, which dictates that the awards should be administered by the Nobel Foundation. Another prize, the Nobel Memorial Prize in Economic Sciences, was established in 1968 by the Sveriges Riksbank, the central bank of Sweden, for contributors to the field of economics. Each prize is awarded by a separate committee; the Royal Swedish Academy of Sciences awards the Prizes in Physics, Chemistry, and Economics, the Karolinska Institute awards the Prize in Physiology or Medicine, and the Norwegian Nobel Committee awards the Prize in Peace. Each recipient receives a medal, a diploma and a cash prize that has varied throughout the years. In 1901, the winners of the first Nobel Prizes were given 150,782 SEK, which is equal to 7,731,004 SEK in December 2007. In 2008, the winners were awarded a prize amount of 10,000,000 SEK. The awards are presented in Stockholm in an annual ceremony on December 10, the anniversary of Nobel's death.

List of economists

This is an incomplete alphabetical list by surname of notable economists, experts in the social science of economics, past and present. For a history of economics, see the article History of economic thought. Only economists with biographical articles in Wikipedia are listed here.

List of people from Minneapolis

The following list mentions notable people who were born in or lived in Minneapolis, Minnesota, in the United States, and gained recognition.

Lost Decade (Japan)

The Lost Decade or the Lost 10 Years (失われた十年, Ushinawareta Jūnen) is a period of economic stagnation in Japan following the Japanese asset price bubble's collapse in late 1991 and early 1992. The term originally referred to the years from 1991 to 2000, but recently the decade from 2001 to 2010 is often included so that the whole period is referred to as the Lost Score or the Lost 20 Years (失われた二十年, Ushinawareta Nijūnen). Broadly impacting the entire Japanese economy, over the period of 1995 to 2007, GDP fell from $5.33 trillion to $4.36 trillion in nominal terms, real wages fell around 5%, while the country experienced a stagnant price level. While there is some debate on the extent and measurement of Japan's setbacks, the economic effect of the Lost Decade is well established and Japanese policymakers continue to grapple with its consequences.

Norwegian School of Economics

The Norwegian School of Economics (Norwegian: Norges Handelshøyskole; literally "Norwegian School of Business Studies") or NHH, until 2011 known in English as the Norwegian School of Economics and Business Administration, is a business school situated in Bergen, Norway. It was founded in 1936 as Norway's first business school and has since its establishment been a teaching and research institution primarily in the field of business administration.Traditionally economics as an academic discipline was only taught at the universities (mainly the University of Oslo, where it was first conceived as a sub-discipline of law in the 19th century) whereas business administration was not regarded as an academic discipline in Norway, with no formal education program being available. The school was founded to offer the first formal training in business studies in the form of a more vocational, two-year degree, called handelskandidat ("candidate of commerce"). In 1963 the handelskandidat degree was renamed siviløkonom and it later evolved into a four-year degree. The school today offers degrees at the master's and doctoral levels. Although business administration remains the primary focus, it now also integrates economic perspectives in its research and teaching, with the emphasis on microeconomics.

The school participates in exchange programs with more than 130 foreign institutions in over 30 countries, and around 40 percent of the school's students spend at least one semester on exchange. The school is member of CEMS (The Global Alliance for Management Education) and the Partnership in International Management (PIM) network, and is accredited by EQUIS.Admission to NHH is the most selective in the field of business administration in Norway. For seven years in a row (2007–13), the NHH undergraduate programme received more applications than any other undergraduate study programme in Norway, and around 10,8% of applicants are admitted annually. In 2016, NHH received 4343 applications for 470 spots in its undergraduate program.

Rajnish Mehra

Rajnish Mehra (born January 15, 1950) 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.

Previously, he was a professor at Arizona State University, the University of California, Santa Barbara, and the Massachusetts Institute of Technology, and an associate professor at Columbia University. He has been a consultant to the Fixed Income Group at Salomon Smith Barney and an adviser to Vega Asset Management.Mehra is a co-author, with Edward C. Prescott, of one of the most cited papers in financial economics "The Equity Premium: A Puzzle". His research has been published in Econometrica, the Journal of Monetary Economics, the Journal of Economic Dynamics and Control, the Financial Analysts Journal, and other premier journals. He is the editor of the Elsevier publication, Handbook of the Equity Risk Premium.In 2003 he was awarded a Graham and Dodd Scroll Award for excellence in financial writing by the Financial Analysts Journal.He is a signatory of the 2009 petition for Fed Independence, drafted in response to the Federal Reserve Transparency Act of 2009, along with 190 other American economists.

Robert F. Engle

Robert Fry Engle III (born November 10, 1942) is an American economist and the winner of the 2003 Nobel Memorial Prize in Economic Sciences, sharing the award with Clive Granger, "for methods of analyzing economic time series with time-varying volatility (ARCH)".

Robert J. Hodrick

Robert James Hodrick (born September 12, 1950), is a U.S. economist specialized in International Finance. AB, Princeton, 1972; PhD, University of Chicago, 1976. Until 1983, he served as a professor at Carnegie-Mellon University, where he worked jointly with Edward C. Prescott on business cycle, and developed the Hodrick–Prescott filter to distinguish trends from cyclical fluctuations. He taught at Northwestern University and joined Columbia University in 1996.

Society for the Advancement of Economic Theory

The Society for the Advancement of Economic Theory abbreviated as SAET is a non-profit membership society founded to "advance knowledge in theoretical economics and to facilitate communication among researchers in economics, mathematics, game theory, or any other field which is potentially useful to economic theory." Membership includes economists, mathematicians, game theorists, and other individuals with interests in economics based on rigorous theoretical reasoning.

Walter Heller

Walter Wolfgang Heller (27 August 1915 – 15 June 1987) was a leading American economist of the 1960s, and an influential adviser to President John F. Kennedy as chairman of the Council of Economic Advisers, 1961–64.

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