Inflation Study fetches Nobel Prize for Economist Phelps

The 2006 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, commonly known as the Nobel Prize in Economics, was bagged by America’s Edmund S Phelps for his notable work in the field of inflation and unemployment.

Phelps is the sixth American Nobel Laureate this year, with only the literature and peace prize remaining.

The Nobel Prize, instituted by the will of Alfred Nobel, is awarded to people (and, in the case of the Peace Prize, to organizations) who have done exceptional study, invented innovative techniques or equipment or made a stupendous contribution to society in various fields. They are widely regarded as the supreme commendation in their respective subject areas.

Edmund S. Phelps, 73, is a distinguished American economist renowned for his work on economic growth at Yale’s Cowles Foundation in the 1960s. He is best known for introducing in the late 60’s an expectations-based microeconomics into the theory of employment determination and price-wage dynamics.

His most influential work is his elementary theory of a natural rate of unemployment – its existence, how its size is determined and how market forces may drive unemployment from it.

In 1955, Phelps received his B.A. degree at Amherst College and his Ph.D. degee at Yale University in 1959. He started his academic career at Yale, moved to University of Pennsylvania and eventually to Columbia University where he is now McVickar Professor of Political Economy.

The Swedish Academy said his work "deepened our understanding of the relation between short-run and long-run effects of economic policy".

The Noble Prize for Economics was instituted by the Bank of Sweden (the world's oldest central bank) at its 300th anniversary in 1968 and since then, it is dominated by Americans.

The Noble Prize in Economics was not one of the awards established in the will of Alfred Nobel; however, the economics laureates receive their diploma and gold medal from the Swedish monarch at the same December 10 ceremony in Stockholm as the Nobel laureates in physics, chemistry, physiology or medicine, and literature.

Past winners in economics include Milton Friedman, Amartya Sen, Franco Modigliani and Friedrich August von Hayek. Last year, the prize was granted to Robert J. Aumann (Israel) and Thomas Shelling (USA) for enhancing the understanding of conflict and cooperation through game-theory analysis.

Phelps has explained the relationship between inflation and unemployment, described by some economics as tradeoff.

He debated that inflation implanted in the economy can lead to stagflation despite high unemployment. This also meant that if inflation expectations were kept in check, the economy could run at a lower level of unemployment.

Such views helped influence central banks to try and hold back inflationary expectations at the appointed time.

Economic Laureates are chosen the same way as the Laureates in other areas. Nominations of about 100 living persons are made by qualified nominators and are received by a five to eight member committee. The list is then forwarded to Nobel Assembly for the final consent.

Just like the other prizes, not more than three people can share the prize for a given year and they must be living at the time the prize is awarded. The final award is made in Stockholm and is accompanied by a prize of 10 million Kronor.