Edward Prescott is the W.D. Carey Chair in Economics at Arizona State University, and Senior Monetary Advisor, Federal Reserve Bank of Minneapolis.
The Royal Swedish Academy of Sciences awarded the 2004 Nobel Prize in Economic Sciences to Finn Kydland and Edward Prescott “for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles.” Business cycle fluctuations and the design of economic policy are key areas in macroeconomic research. Ed Prescott has made fundamental contributions to these areas, with great significance not only for macroeconomic analysis, but also for the practice of monetary and fiscal policy in many countries.
Quotes from Edward Prescott’s April 2006 lecture at Trinity University:
I have been successful as a ‘teacher-researcher.’ For me the activity of teaching and research is a joint one. As a pure teacher I would be mediocre at best. As a pure researcher I would do okay, but not great. Faculty need good students every bit as much as students need good faculty.
My personality helps explain my evolution as an economist. I love puzzles and figuring things out. I am a skeptic and have to be convinced of everything. I have always wanted to understand why and was neither good at nor liked to rely on memory to do well. I have intense concentration when working on a problem with someone. It’s very much like sports. Instead of trying to win the game one is trying to solve the problem. Who has the insight does not matter – what matters is that the problem gets solved. Assigning credit is impossible in these situations.
It was a stroke of luck going to the Graduate School of Industrial Administration (Carnegie-Mellon University), which I chose because their interdisciplinary program sounded interesting and because they gave me good money. GSIA at the time was a great place with some truly exceptional minds – Bob Lucas, Herb Simon, Allan Newell, and Morrie DeGroot – and a truly exceptional teacher – Mike Lovell.
Once Lucas wrote his expectations and neutrality of money paper, I stopped teaching macroeconomics. His paper destroyed then existing macroeconomics. Economic reasoning could now be applied in dynamic stochastic settings. Until Finn and I wrote our time-to-build paper, however, the profession was highly limited in what quantitative theoretical statements it could make.
There has been a fundamental shift in methodology among economists. Like every quantitative economist, I was trained in the empirical tradition. The objective was to find the best fit. The product was the model. The shift was to instead use theory, a model, and economic statistics to answer some question. Many in the empirical tradition refuse to recognize that the quantitative and theoretical traditions are different. Good quantitative theoretical work is bad quantitative empirical work and vice versa.
I am happy that I am still producing. My problem now is not enough time to work on all the great economic problems. Economics is now a hard science – this is the golden age of economics. Economists are exploiting the methodology that Finn and I developed. So many researchers are learning so much, and so much remains to be learned.