Edmund S. Phelps who is a professor at Columbia University won the Nobel Prize in Economics yesterday for his work explaining the relationship between inflation and unemployment, producing theories that helped revolutionize the way the Federal Reserve and other central banks conduct interest-rate policy.
The misguided notion that accepting higher inflation could lower the nation’s long-term unemployment rate (known as the Phillips curve, named after an economist from New Zealand, A.W. Phillips) contributed ruinously to Federal Reserve policies of the 1970s and resulted in the high inflation and high unemployment, a combination that came to be called stagflation. Phelps developed a revised model, called the expectations-augmented Phillips curve.
The Royal Swedish Academy of Sciences announced the prize yesterday in Stockholm, saying Phelps’s theories “radically changed our perception of the interaction between inflation and unemployment”.
Via: Washington Post
