Nobel Prize in Economics 2004 to Finn Kydland

NHH Alumnus and Professor II Finn E. Kydland became the third Norwegian to win the prestigious Nobel Prize for Economics in partnership with American Professor Edward Prescott of the Arizona State University, a former visiting professor at NHH, on Monday 11 October, 2004.


Kydland and Prescott were selected as winners of the prestigious Nobel Prize "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles", the Royal Swedish Academy of Sciences said in its citation. "Their work has not only transformed economics research, but has also profoundly influenced the practice of economic policy in general and monetary policy in particular", the announcement continued.


The announcement arrived as Kydland was giving a lecture to students at his alma mater, NHH, where he has been an adjunct professor since 1993. The class was disturbed as he was urged to take an important telephone call from Stockholm. " was a little perturbed when they interrupted my lecture until I got to the secretary's office and found out what the phone call was all about", he told journalists later.


"It is fantastic, mainly because this is the greatest honour I can get as an economist", Kydland told Norwegian TV channel NRK. "What is more important is that other economists have built upon my work".


At a reception for faculty and staff the following day, Rector Per Ivar Gjærum announced that the Auditorium where Kydland was lecturing when the now famous telephone call came would now be know as the Finn E. Kydland Auditorium in recognition of this tremendous achievement.


Born in Ålgård near Stavanger in 1943, Professor Kydland began his education in economics at NHH, from where he qualified with the Norwegian Siviløkonom degree (equivalent to a Master of Science) in 1968. He continued at NHH as a research scholar for a couple of years and then moved to Carnegie Mellon University, USA where he completed his PhD in 1973. It was at Carnegie Mellom that Kydland and Prescott first met. Prescott was Kydland's PhD adviser.

Prescott og Kydland

Recently qualified, Kydland moved back to NHH to take up a post Associate Professor in 1973. Kydland and Prescott continued the cooperation they had began in the US and in 1974 Prescott took up a visiting professorship at NHH. It was during this period that the foundations for the seminal 1977 paper "Rules rather than discretion: The Inconsistency of Optimal Plans" were laid. The research for this work was first published as a discussion paper at the Department of Economics at NHH in 1975 (The Inconsistency of Optimal Policy, DP 05/75) while Kydland and Prescott were working together at NHH in Bergen.


The paper addressed the "time consistency problem" in economic policy, demonstrating that inconsistent monetary policy often gave rise to high inflation and that a longer term commitment to a set course of action was better. This had by far its biggest real-world impact on monetary policy, laying the groundwork for more independent central banks.

In 1978 Kydland moved to Carnegie Mellon to take up as post as Associate Professor and in 1982 he became Professor of Economy. The cooperation between Kydland and Prescott continued and over the summer of 1980 they developed the second paper citied by the Royal Swedish Academy of Sciences, while Kydland had temporarily returned to NHH and Prescott had come as a visiting professor with his wife and family. "Time to Build and Aggregate Fluctuations" was published in 1982.


This paper developed a new theory to explain business cycles, looking at changes in technology and other supply side shocks such as rises in oil prices rather than the traditional Keynesian focus on demand. This work set the stage for more robust models by regarding business cycles as the collective outcome of countless forward-looking decisions made by individual households and firms regarding consumption regarding consumption, investments, labour supply, etc, and Kydland and Prescott's methods have been widely adopted in modern macroeconomics.


In addition to his position as adjunct professor at NHH, Kydland holds the Jeff Henley Chair in Economics at University of California, Santa Barbara, USA and he is a faculty member at Carnegie Mellon University, USA. He has also held a teaching position at the University of Texas and his current professional affiliates include the Federal Reserve Bank of Dallas, IC-2 Institute at the University of Texas in Austin, the Federal Reserve Bank of Cleveland and the Econometric Society. After the Nobel Prize announcement Kydland agreed to renew his position at NHH for a further 5 years.

Sources:

BBC News (2004) "Norway and US share Nobel prize", BBC News, 11 October 2004
Carnegie Mellon Today (2004) "Tepper School's Finn Kydland and Alumnus Edward Prescott win Nobel prize in economics" Carnegie Mellon Today,
Hagen, K. B. (2004) "Nobelprisen til Kydland og Prescott" K7 Bulle, Mandag 25. Oktober 2004
Larsen, K. G. (2004), "Finn E. Kydland - et kort faglig portrett", Paraplyen, 14 October 2004
Moore, M. (2994) "Nobel Economics Prize Awarded", Washington Post, 11 October 2004
Rolf Brunstad and Asle Haukaas, NHH
Strupczewski, J. & Brown, S (2004) "Kydland and Prescott win Nobel economics prize" Reuters, 12 October 2004
The Economist (2004) "Cycles and commitment", The Economist, 14 October 2004,
The Royal Swedish Academy of Sciences (2004), Official press release 11 October 2004
Uchitelle, L. (2004) " 2 Mavericks in Economics Awarded Nobel Prize", The New York Times, 12 October 2004
University of California Santa Barbara (2004) "Finn E. Kydland - 2004 Nobel prize in economics"
 

Read the press release from The Royal Swedish Academy of Sciences

Lecture held by Kydland at the Norwegian Ministry of Finance.
 

More photos at Information Department's webpage.