Edmund S. Phelps, McVickar Professor of Political Economy at Columbia University and director, Center on Capitalism and Society at the Earth Institute, was awarded the Nobel Prize in Economics on Monday, October 9 by the Royal Swedish Academy of Sciences.
Phelps won the award – officially named the Sviriges Riksbank Prize in Economic Sciences – for his analysis of intertemporal tradeoffs in macroeconomic policy.
“On behalf of everyone at Columbia, I congratulate Edmund Phelps on having been awarded the Nobel Prize in Economics,” Lee C. Bollinger, President of Columbia University, said. “This is a well-deserved moment of recognition for a man whose pioneering work in macroeconomics has influenced both public policy and ongoing economics research. His work, which has shaped the education of Columbia students for thirty-five years, illustrates the extraordinary breadth and depth of excellence in economics at Columbia.”
The Academy noted that the work of Edmund Phelps has deepened our understanding of the relation between short-run and long-run effects of economic policy. His contributions have had a decisive impact on economic research as well as policy. Phelps showed how the possibilities of stabilization policy in the future depend on today's policy decisions: low inflation today leads to expectations of low inflation also in the future, thereby facilitating future policy making.
Low unemployment and low inflation are central goals of stabilization policy. During the 1950s and 1960s the view of a stable tradeoff between inflation and unemployment was established, the so-called Phillips curve. According to this, the price for reduced unemployment was a one-time increase of the inflation rate. Phelps challenged this view through a more fundamental analysis of the determination of wages and prices, taking into account problems of information in the economy. Individual agents have incomplete knowledge about the actions of others and must base their decisions on expectations. Phelps formulated the hypothesis of the expectations-augmented Phillips curve, according to which inflation depends on both unemployment and inflation expectations.
|Professor Phelps and Columbia University President Lee C. Bollinger listen to Jeffrey Sachs, director of the Earth Institute at Columbia University (not pictured) speak at the Nobel Prize Press Conference
Photo by Diane Bondareff
As a consequence, the long-run rate of unemployment is not affected by inflation but only determined by the functioning of the labor market. It follows that stabilization policy can only dampen short-term fluctuations in unemployment.
About Edmund S. Phelps
Edmund S. Phelps joined the Department of Economics at Columbia in 1971 after several years at Pennsylvania and earlier Yale. He was named McVickar Professor of Political Economy in 1982 and director of the Earth Institute’s Center on Capitalism and Society in 2001. Phelps was elected to membership in the National Academy of Sciences in 1981 at age 47. He is also a fellow of the American Academy of Arts and Sciences and of the Econometric Society. In 2000 he was named a Distinguished Fellow of the American Economic Association. Besides his B.A. from Amherst College in 1955 and his Ph.D. from Yale in 1959 he has six honorary doctorates: Amherst College (1985), University of Rome 'Tor Vergata' (2001), University of Mannheim (2001), Universidade Nova Lisbon (2003), University of Paris-Dauphine (2004) and, in October, the University of Iceland (2004). In May 2004 he was named an honorary professor at Renmin University, Beijing, and in June 2005 he was named an honorary professor at Beijing Technological and Business University and Beijing’s Mundell University of Entrepeneurship.
Columbia and the Nobel Prizes
Columbia has a distinguished tradition in economics, with its faculty winning four Nobel Prizes in economics over the past decade; the most recent in 2001 to University Professor Joseph E. Stiglitz, former chief economist at the World Bank and author of Making Globalization Work. Other past faculty members in economics have included the late William S. Vickrey, James Heckman, Robert Mundell, Edwin R.A. Seligman, Robert M. Haig, Carl S. Shoup, among others.
Nobel Prize Announcement and Press Conference:
Professor Phelp’s Webpage
The Center on Capitalism and Society:
Columbia University Economics Department
The Earth Institute at Columbia University