SWEDEN / USA: American Edmund Phelps wins the 2006 Nobel Prize for Economics

American Edmund Phelps took the 2006 economics Nobel on Monday (October 9) for work on the relationship between unemployment and inflation. The Royal Swedish Academy of Sciences said the Columbia University professor won for challenging the assumption in the 1960s that policy-makers could cut unemployment in the long-term by stimulating demand. Phelps, 73, who owns neither a house nor a car, showed cutting interest rates or taxes would give only a short-term boost to employment. Asked how he felt, Phelps said it was a relief that the waiting was over: "I mean I've been thinking about it for a long time. So it was a really good feeling." In his research, Phelps suggested that inflation was not a cause of unemployment but argued that there was a base level of unemployment which helped keep prices steady. The academy said the theoretical framework Phelps developed in the late 1960s helped economists understand the root of soaring prices and unemployment in the 1970s and the limitations of policies to deal with these problems. His framework helped central banks shift their focus towards using inflation expectations to set monetary policy rather than concentrating on money supply and demand. Americans have swept all the Nobels so far this year. The award for literature will be announced on Thursday and the Peace prize on Friday. The 10 million Swedish crowns ($1.37 million) prize, 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.

ITN Source | October 10, 2006

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