Academic, Economist (1940–Present)
Details
Name: Edward Prescott
Born/Died: 1940 (Glen Falls, New York, USA) – Present
Education: Carnegie Mellon University
School of thought: the New Classical Economics
Known for: Real Business Cycle theory
Famous book: ‘Rules Rather than Discretion: The Inconsistency of Optimal Plans’, ‘Investment under Uncertainty’
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.
Interesting Facts
As a young student, Prescott once achieved ‘only’ 99% in one of his New York State Regent Exams in Mathematics. This caused his Maths teacher Miss Mabel to cry because she wanted him to get 100% in all of his exams.
Prescott was a defensive back and reserve quarterback in his high school varsity football team. As he puts it: “Our team was loaded with talent and easily won all our games. This experience was not exciting. There was no challenge.”
“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
