Academic, Economist (1940–Present)
Edward Prescott is an American economist who, alongside Finn Kydland, won the Nobel Prize in economics in 2004 for contributions to dynamic macroeconomics including Real Business Cycle theory. In 2012, Prescott was ranked by The Research Papers in Economics as the 19th most influential economist on the planet.
Macroeconomics was transformed by his theory of the business cycle. Real Business Cycle theory posits that exogenous factors, like technological change and wars, cause cyclical fluctuations in the economy. Prescott posits that fluctuations in economic growth are simply the time-varying Pareto optimal response of the market to exogenous changes to the economy. Prescott contends that markets should be left to adjust by themselves and that government intervention to stabilise cyclical fluctuations will harm the economy.
Additionally, he is known for developing the Hodrick-Prescott filter, which is used to smooth fluctuations in time series data. He has also served as an economic advisor to the Federal Reserve Bank of Minneapolis, where he expressed his criticism of fractional reserve banking.
“In the Great Depression, employment was not low because investment was low. Employment and investment were low because labor market institutions and industrial policies changed in a way that lowered normal employment.”
“Progess, do not regress.”
– Edward Prescott