Sargent and Sims

I woke up this morning to Per Krusell's voice on the radio, telling me that Thomas Sargent and Christopher Sims had won the 2011 Nobel Prize in Economics. Excellent!

Sargent, along with Neil Wallace, was among the first macroeconomists to recognize that Robert Lucas had done something important in 1972, and helped the rest of the profession understand that by developing the ideas. Sargent, Wallace, and Sims were instrumental in developing, in the 1970s, a model for cooperation in economic research between academics and central bankers at the Federal Reserve Bank of Minneapolis. Minnesota macro has since had a huge influence on the profession, and on the practice of central banking.

Both Sargent and Sims brought a strong econometric tradition to macroecononomics. Sims's work on vector autoregressions, beginning with Macroeconomics and Reality has been highly influential, and you can see Sims's influence in how people like Marty Eichenbaum, Larry Christiano, and Jordi Gali, for example, do their work. Modern quantitative work in macroeconomics, among New Keynesians and non-Keynesians alike, includes both estimation and calibration (from Prescott), a state of affairs I think Sargent and Sims are pleased with.

Sargent has been a key proponent of the use of mathematics and technical developments in other fields in macroeconomics, from dynamic programming methods to frequency domain techniques to robust control. In part, he has promoted the use of these techniques in several generations of textbooks for economics graduate students. Indeed, Sargent's key influence has been through his students. Any Sargent student can tell you about the "Sargent reading group," how it works, and how much they learned from it.

Both Sargent and Sims are economists with extremely high technical ability, but with brilliant insight into economic ideas and economic modeling. Sims is not only a top econometrician, but has made key contributions to the study of the fiscal theory of the price level and rational inattention.

The Nobel committee chose well this year. I think all of us should be pleased.