American awarded Nobel prize for economics
Columbia University prof Edmund Phelps honored for work on interaction
between inflation expectations, unemployment and prices.
October 9 2006: 8:32 AM EDT
STOCKHOLM (Reuters) -- American Edmund Phelps won the 2006 Nobel prize for
economics for research into the interplay between prices, unemployment and
inflation expectations, the Royal Swedish Academy of Sciences said Monday.
Phelps, of Columbia University, won for work in the 1960s that challenged an
assumption that policy-makers could target either low inflation or low
unemployment, but not both.
The 73-year-old economist showed that wage and price trends depend on
inflation expectations as well as the health of the job market, the academy
said as it announced the award worth 10 million Swedish crowns ($1.37
million).
Americans have swept all the Nobels announced so far this year.
Asked how he felt about winning, Phelps said: "It feels better and better as
it begins to sink in that I have won this wonderful award. It's great."
"There was a part of me that had been expecting it. I have understood that
it could happen. But I had no idea when it could happen and if it could
happen."
In his research, Phelps suggested that in setting prices and negotiating
wages, employers and workers make judgments about future inflation that in
turn influence the inflation outcome.
"As a consequence, the long-run rate of unemployment is not affected by
inflation but only determined by the functioning of the labor market," the
academy said in a statement.
"Phelps's work has fundamentally altered our views on how the macroeconomy
operates," it added.
The academy said the theoretical framework Phelps developed in the late
1960s helped economists understand the causes of soaring prices and
unemployment in the 1970s.
The prize, which is known as the Sveriges Riksbank Prize in Economic
Sciences in Memory of Alfred Nobel, was not in the original list of awards
set up by the Swedish dynamite millionaire.
It was added later by the Swedish central bank and first awarded in 1969.
The hotly anticipated literature Nobel winner will be revealed on Thursday,
followed by Friday's announcement in Oslo of the 2006 Nobel laureate for
peace.
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