Edward C. Prescott facts for kids

Quick facts for kids Edward C. Prescott
Prescott in 2015
Born	(1940-12-26)December 26, 1940 Glens Falls, New York, U.S.
Died	November 6, 2022(2022-11-06) (aged 81)
Institution	Australian National University (ANU) Arizona State University Carnegie Mellon University Federal Reserve Bank of Minneapolis Federal Reserve Bank of Richmond Northwestern University University of Minnesota University of Pennsylvania University of California, Santa Barbara University of Chicago New York University
School or tradition	New classical economics
Alma mater	Swarthmore College Case Western Reserve University Carnegie Mellon University
Doctoral advisor	Michael C. Lovell
Doctoral students	Costas Azariadis Gary Hansen Finn Kydland V. V. Chari Fernando Alvarez Richard Rogerson
Influences	Morris H. DeGroot Robert Lucas, Jr. John Muth
Contributions	Real Business Cycle theory Time consistency in economic policy
Awards	Nobel Prize in Economics (2004)
Information at IDEAS / RePEc

Edward Christian Prescott (born December 26, 1940 – died November 6, 2022) was an American economist. He won the Nobel Memorial Prize in Economics in 2004. He shared this important award with Finn E. Kydland. They won for their work on how economies change over time. Their research helped us understand how economic policy should be set and what causes ups and downs in the economy. Much of this work happened while they were at Carnegie Mellon University. Prescott was a highly respected economist. He was ranked among the most cited economists in the world. He also taught at the Australian National University in Australia. Edward Prescott passed away in 2022 at the age of 81.

Biography

Early Life and Education

Edward Prescott was born in Glens Falls, New York. He earned his first degree in mathematics from Swarthmore College in 1962. After that, he studied operations research and received a master's degree from Case Western Reserve University in 1963. He then went on to get his PhD in economics from Carnegie Mellon University in 1967.

Career Highlights

Prescott taught at several well-known universities throughout his career. He started at the University of Pennsylvania from 1966 to 1971. Later, he returned to Carnegie Mellon and then moved to the University of Minnesota. From 2003, he taught at Arizona State University.

He also worked as an economic advisor at the Federal Reserve Bank of Minneapolis starting in 1981. This role allowed him to give advice on important economic decisions. He was known for his work on macroeconomics. This field studies the economy as a whole, looking at things like business cycles (the natural ups and downs of economic activity). He also helped create the Hodrick–Prescott filter. This is a tool used to smooth out economic data and see long-term trends.

Winning the Nobel Prize

Edward Prescott and Finn Kydland won the Nobel Prize for their work on two key papers. These papers changed how economists thought about government policy and economic changes.

Their first paper, from 1977, was called "Rules Rather than Discretion: The inconsistency of optimal planning." In this paper, Prescott and Kydland looked at how governments make economic plans. They realized that people in the economy are smart. They try to guess what the government will do next. Because of this, a government's plans might not work as expected.

For example, imagine a town near a river that often floods. The government might say, "Don't build houses here, and we won't build flood protection." If people believe this, they won't build houses. But what if people think, "If enough of us build houses here, the government will have to protect us later"? Then, people might build houses anyway. The government, seeing many houses, might then decide to build flood protection. This shows how people's expectations can change the outcome of a policy. Prescott and Kydland showed that governments need to be very clear and consistent with their rules. This helps people trust and understand what will happen.

Their second important paper, from 1982, was "Time to Build and Aggregate Fluctuations." In this paper, they explored why economies have "business cycles." These are periods when the economy grows fast, then slows down, and then grows fast again. Prescott and Kydland suggested that changes in technology are a big reason for these cycles. They argued that new inventions and better ways of doing things don't just make living standards better in the long run. They also cause many of the short-term ups and downs in the economy.

They created a model to study how things like production, investment, and jobs changed after World War II. Their model showed that about 70% of the changes in economic output could be linked to technology improvements. Their main contribution was showing how to connect big economic trends (macroeconomics) with the decisions of individual people and businesses (microfoundations).

Views on Economic Policy

Edward Prescott was also involved in public discussions about economic policy. In 2009, he joined over 250 other economists. They signed a letter to U.S. President Barack Obama. They were against a big government spending plan called the American Recovery and Reinvestment Act. This letter was published in major newspapers.

Later in his life, Prescott focused on how high taxes can negatively affect economies, especially in Europe. He believed that taxes could slow down economic growth.

Honours and Awards

• United States National Academy of Sciences (2008)
• Nobel Memorial Prize in Economic Sciences (2004)
• Erwin Plein Nemmers Prize in Economics, Northwestern University (2002)
• Fellow, American Academy of Arts and Sciences (1992)
• Fellow, Econometric Society (1980)
• Alexander Henderson Award, Carnegie Mellon (1967)

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