Edward Christian Prescott (December 26, 1940 – November 6, 2022) was an American economist. He received the
Nobel Memorial Prize in Economics
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences adminis ...
in 2004, sharing the award with
Finn E. Kydland, "for their contributions to dynamic
macroeconomics
Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...
: the time consistency of
economic policy
''Economic Policy'' is a quarterly peer-reviewed academic journal published by Oxford University Press, Oxford Academic on behalf of the Centre for Economic Policy Research, the Center for Economic Studies (University of Munich), and the Paris Scho ...
and the driving forces behind
business cycles
Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...
". This research was primarily conducted while both Kydland and Prescott were affiliated with the
Graduate School of Industrial Administration (now
Tepper School of Business) at
Carnegie Mellon University
Carnegie Mellon University (CMU) is a private research university in Pittsburgh, Pennsylvania, United States. The institution was established in 1900 by Andrew Carnegie as the Carnegie Technical Schools. In 1912, it became the Carnegie Institu ...
. According to the
IDEAS/RePEc rankings, he was the 19th most widely cited economist in the world in 2013.
In August 2014, Prescott was appointed an Adjunct Distinguished Economic Professor at the
Australian National University (ANU) in
Canberra
Canberra ( ; ) is the capital city of Australia. Founded following the Federation of Australia, federation of the colonies of Australia as the seat of government for the new nation, it is Australia's list of cities in Australia, largest in ...
, Australia. Prescott died of cancer on November 6, 2022, at the age of 81.
Biography
Early life
Prescott was born in
Glens Falls, New York
Glens Falls is a City (New York), city in Warren County, New York, Warren County, New York, United States and is the central city of the Glens Falls, New York metropolitan area, Glens Falls Metropolitan Statistical Area. The population was 14,83 ...
, to Mathilde Helwig Prescott and William Clyde Prescott. In 1962, he received his
bachelor's degree
A bachelor's degree (from Medieval Latin ''baccalaureus'') or baccalaureate (from Modern Latin ''baccalaureatus'') is an undergraduate degree awarded by colleges and universities upon completion of a course of study lasting three to six years ...
in mathematics from
Swarthmore College
Swarthmore College ( , ) is a Private college, private Liberal arts colleges in the United States, liberal arts college in Swarthmore, Pennsylvania, United States. Founded in 1864, with its first classes held in 1869, Swarthmore is one of the e ...
, where he was a member of the
Delta Upsilon fraternity. He then received a master's degree from
Case Western Reserve University
Case Western Reserve University (CWRU) is a Private university, private research university in Cleveland, Ohio, United States. It was established in 1967 by a merger between Western Reserve University and the Case Institute of Technology. Case ...
in
operations research
Operations research () (U.S. Air Force Specialty Code: Operations Analysis), often shortened to the initialism OR, is a branch of applied mathematics that deals with the development and application of analytical methods to improve management and ...
in 1963, and a PhD in economics at
Carnegie Mellon University
Carnegie Mellon University (CMU) is a private research university in Pittsburgh, Pennsylvania, United States. The institution was established in 1900 by Andrew Carnegie as the Carnegie Technical Schools. In 1912, it became the Carnegie Institu ...
in 1967.
Career
From 1966 to 1971, Prescott taught at the
University of Pennsylvania
The University of Pennsylvania (Penn or UPenn) is a Private university, private Ivy League research university in Philadelphia, Pennsylvania, United States. One of nine colonial colleges, it was chartered in 1755 through the efforts of f ...
. He then returned to Carnegie Mellon until 1980, when he moved to the
University of Minnesota
The University of Minnesota Twin Cities (historically known as University of Minnesota) is a public university, public Land-grant university, land-grant research university in the Minneapolis–Saint Paul, Twin Cities of Minneapolis and Saint ...
, where he taught until 2003. In 1978, he was a visiting professor at the
University of Chicago
The University of Chicago (UChicago, Chicago, or UChi) is a Private university, private research university in Chicago, Illinois, United States. Its main campus is in the Hyde Park, Chicago, Hyde Park neighborhood on Chicago's South Side, Chic ...
, where he was named a
Ford Foundation
The Ford Foundation is an American private foundation with the stated goal of advancing human welfare. Created in 1936 by Edsel Ford and his father Henry Ford, it was originally funded by a $25,000 (about $550,000 in 2023) gift from Edsel Ford. ...
Research Professor. In the following year, he visited
Northwestern University
Northwestern University (NU) is a Private university, private research university in Evanston, Illinois, United States. Established in 1851 to serve the historic Northwest Territory, it is the oldest University charter, chartered university in ...
and stayed there until 1982. From 2003 on he taught at
Arizona State University
Arizona State University (Arizona State or ASU) is a public university, public research university in Tempe, Arizona, United States. Founded in 1885 as Territorial Normal School by the 13th Arizona Territorial Legislature, the university is o ...
.
Prescott was an economic advisor at the
Federal Reserve Bank of Minneapolis
The Federal Reserve Bank of Minneapolis, located in Minneapolis, Minnesota, Minneapolis, Minnesota, in the United States, covers the 9th District of the Federal Reserve, which is made up of Minnesota, Montana, North Dakota, North and South Dakota ...
since 1981. In 2004, he held the Maxwell and Mary Pellish Chair in Economics at the
University of California, Santa Barbara
The University of California, Santa Barbara (UC Santa Barbara or UCSB) is a Public university, public Land-grant university, land-grant research university in Santa Barbara County, California, United States. Tracing its roots back to 1891 as an ...
. In 2006, he held the
Shinsei Bank
is a leading diversified Japanese financial institution that provides a full range of financial products and services to both institutional and individual customers. It is owned by SBI Holdings, SBI Group and headquartered in Chuo, Tokyo, Chuo, ...
Visiting Professorship at
New York University
New York University (NYU) is a private university, private research university in New York City, New York, United States. Chartered in 1831 by the New York State Legislature, NYU was founded in 1832 by Albert Gallatin as a Nondenominational ...
. In August 2014, Prescott was appointed an Adjunct Distinguished Professor at Research School of Economics (RSE) of the
Australian National University
The Australian National University (ANU) is a public university, public research university and member of the Group of Eight (Australian universities), Group of Eight, located in Canberra, the capital of Australia. Its main campus in Acton, A ...
.
The
Research Papers in Economics
Research Papers in Economics (RePEc) is a collaborative effort of hundreds of volunteers in many countries to enhance the dissemination of research in economics. The heart of the project is a decentralized database of working papers, preprints, ...
project ranked him as the 19th most influential economist in the world as of August 2012 based on his academic contributions.
More recently working as an economist at the
Federal Reserve Bank of Minneapolis
The Federal Reserve Bank of Minneapolis, located in Minneapolis, Minnesota, Minneapolis, Minnesota, in the United States, covers the 9th District of the Federal Reserve, which is made up of Minnesota, Montana, North Dakota, North and South Dakota ...
and as a professor at
Arizona State University
Arizona State University (Arizona State or ASU) is a public university, public research university in Tempe, Arizona, United States. Founded in 1885 as Territorial Normal School by the 13th Arizona Territorial Legislature, the university is o ...
's
W. P. Carey School of Business, he was a major figure in
macroeconomics
Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output (econ ...
, especially the theories of
business cycles
Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...
and
general equilibrium
In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an ov ...
. In his "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," published in 1977 with
Finn E. Kydland, he analyzed whether central banks should have strict numerical targets or be allowed to use their discretion in setting
monetary policy
Monetary policy is the policy adopted by the monetary authority of a nation to affect monetary and other financial conditions to accomplish broader objectives like high employment and price stability (normally interpreted as a low and stable rat ...
. He is also well known for his work on the
Hodrick–Prescott filter, used to smooth fluctuations in a time series.
Nobel Prize
Prescott and Finn Kydland received the
Nobel prize for economics
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences adminis ...
based on two papers they authored. In the first paper, written in 1977 "Rules Rather than Discretion: The inconsistency of optimal planning" Prescott and Kydland argue that purpose and goals of economic planning and policy is to trigger a desired response from the economy. However, Prescott and Kydland realized that these sectors are made up of individuals, individuals who make assumptions and predictions about the future. As Prescott and Kydland stated "Even if there is a fixed and agreed upon
social objective function and
policy makers know the timing and magnitude of the effects of their actions... correct evaluation of the end-of-point position does not result in the social objective being maximized." Prescott and Kyland were pointing out that agents in the economy already factor into their decision making the assumed response by policy makers to a given economic climate.
Additionally Prescott and Kydland felt that the policy makers due to their relationship with government suffered from a credibility issue. The reason for this dynamic is that the political process is designed to fix problems and benefit its citizens today. Prescott and Kydland demonstrated this with a simple yet convincing example. In this example they take an area that has been shown likely to flood (a flood plain) and the government has stated that the "socially optimal outcome" is to not have houses be built in that area and therefore the government states that it will not provide flood protection (dams, levees, and flood insurance) rational agents will not live in that area. However, rational agents are forward planning creatures and know that if they and others build
houses in the flood plain the government which makes decisions based on current situations will then provide flood protection in the future. While Prescott never used these words he was describing a moral hazard.
The second paper, written in 1982, "Time to Build and Aggregate Fluctuations," Prescott and Kydland argued that shifts in supply typically caused by changes and improvements in technology accounted for "Not only long term increases in living standards but also to many of the short term fluctuations in business cycles." To study this hypothesis Prescott established a model to study the change in output, investment, consumption, labor productivity, and employment, between the end of the
Second World War
World War II or the Second World War (1 September 1939 – 2 September 1945) was a World war, global conflict between two coalitions: the Allies of World War II, Allies and the Axis powers. World War II by country, Nearly all of the wo ...
and 1980. Using this model the two economists were able to correlate 70% of the fluctuation in output to changes and growth in technology. Their main contribution, however, was the way of modeling macroeconomic variables with microfoundations.
Political activity
In January 2009 Prescott, along with more than 250 other economists and professors, signed an open letter to
U.S. President
The president of the United States (POTUS) is the head of state and head of government of the United States. The president directs the Federal government of the United States#Executive branch, executive branch of the Federal government of t ...
Barack Obama
Barack Hussein Obama II (born August 4, 1961) is an American politician who was the 44th president of the United States from 2009 to 2017. A member of the Democratic Party, he was the first African American president in American history. O ...
opposing the passage of the
American Recovery and Reinvestment Act. The letter was sponsored by libertarian think tank, the
Cato Institute
The Cato Institute is an American libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Ed Crane, Murray Rothbard, and Charles Koch, chairman of the board and chief executive officer of Koch Industries.Koch ...
, and was printed as a paid advertisement in several newspapers including ''
The New York Times
''The New York Times'' (''NYT'') is an American daily newspaper based in New York City. ''The New York Times'' covers domestic, national, and international news, and publishes opinion pieces, investigative reports, and reviews. As one of ...
'' and the ''
Arizona Republic''.
His late writings focused on the negative effect of taxes on the economy in Europe.
Honours and awards
*
United States National Academy of Sciences
The National Academy of Sciences (NAS) is a United States nonprofit, non-governmental organization. NAS is part of the National Academies of Sciences, Engineering, and Medicine, along with the National Academy of Engineering (NAE) and the Nati ...
(2008)
*
Nobel Memorial Prize in Economic Sciences
The Nobel Memorial Prize in Economic Sciences, officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (), commonly referred to as the Nobel Prize in Economics(), is an award in the field of economic sciences adminis ...
(2004)
*
Erwin Plein Nemmers Prize in Economics, Northwestern University (2002)
* Fellow,
American Academy of Arts and Sciences
The American Academy of Arts and Sciences (The Academy) is one of the oldest learned societies in the United States. It was founded in 1780 during the American Revolution by John Adams, John Hancock, James Bowdoin, Andrew Oliver, and other ...
(1992)
* Fellow,
Econometric Society
The Econometric Society is an international society of academic economists interested in applying statistical tools in the practice of econometrics. It is an independent organization with no connections to societies of professional mathematicians o ...
(1980)
*
Alexander Henderson Award, Carnegie Mellon (1967)
References
Further reading
*
*
*
Kehoe, T. J., and E. C. Prescott, editors
''Great Depressions of the Twentieth Century'' Federal Reserve Bank of Minneapolis, 2007.
Rules Rather than Discretion: The Inconsistency of Optimal Plans by Finn Kydland, Kydland and E. C. Prescott*
Time to Build and Aggregate Fluctuations, by Finn Kydland and E. C. Prescott
*
*
*Prescott, Edward C. 'More Time on the Job', in ''
The 4% Solution: Unleashing the Economic Growth America Needs'', edited by Brendan Miniter. New York: Crown Business. 2012.
*
External links
Federal Reserve Bank of Minneapolis* contains the Nobel Prize Lecture 8 dec 2004 ''The Transformation of Macroeconomic Policy and Research''
*
{{DEFAULTSORT:Prescott, Edward C
1940 births
2022 deaths
Economists from New York (state)
American Nobel laureates
Arizona State University faculty
Case Western Reserve University alumni
Tepper School of Business alumni
Carnegie Mellon University faculty
Federal Reserve economists
American macroeconomists
New classical economists
Nobel laureates in Economics
Swarthmore College alumni
University of Minnesota faculty
University of Pennsylvania faculty
People from Glens Falls, New York
Members of the United States National Academy of Sciences
Fellows of the American Academy of Arts and Sciences
Fellows of the Econometric Society
Cato Institute people
20th-century American economists
21st-century American economists
National Bureau of Economic Research
Economists from Arizona
Delta Upsilon members