American and Briton share $1.3 million economics Nobel

Researchers developed statistical tools that help forecast complex trends

October 09, 2003|By NEW YORK TIMES NEWS SERVICE

An American and a Briton have won this year's Nobel Prize in economics for developing statistical methods that allow researchers to better understand stock prices, consumer spending and other long-running series of data.

Robert F. Engle, who was born in Syracuse, N.Y., and Clive W.J. Granger, a native of Wales, spent much of their careers working together at the University of California at San Diego, doing their seminal work in the 1980s. Engle moved to New York University three years ago.

Their research has enabled other economists to study the relationship between different variables, such as personal wealth and consumer spending, in ways not possible before.

A more sophisticated understanding of those relationships - what is cause and what is effect, for instance - has led to both a richer understanding of how the economy works and better forecasts, economists said.

"It's not that they have looked at a specific problem and solved it, as has been the case with other prizes," said Lars Calmfors, a member of the prize committee of the Royal Swedish Academy, which administers the Nobel awards, and a professor of international economics at Stockholm University. "This is really basic research. It's a methodological prize."

In a telephone interview yesterday from a house he owns in France, Engle said: "I'm in the town of Annecy, France, and it's late afternoon, and it's a beautiful day. How they tracked me down here, I'm not sure. It's pretty far from the big financial centers."

Granger, working this semester in New Zealand, was awakened at 3 a.m. today with the news, he said.

The two men will share prize money of about $1.3 million. The economics prize - officially the Nobel Memorial Prize in Economic Science - is the only one not established by Alfred Nobel's will; it was instead created by Sweden's central bank in 1968.

Engle and Granger were among a group of a few dozen economists their colleagues considered potential winners in the coming years. But the two were not seen as favorites this year because two other people from their field - econometrics, which is the use of statistics to study the economy - had received the prize just three years ago.

"I kind of thought I had a chance," Granger, 69, said. "But I wasn't expecting it."

Before the two published their work, economists often had to assume that a variable was no more likely to move in one direction than the other, even when the evidence - such as the rise in stock values over the past 200 years - showed otherwise. Statistical models simply offered no alternative.

Starting in the late 1970s, however, Granger developed ways to analyze the relationship between two statistics that had both a long-term trend and an element of randomness. The month-to-month fluctuation in consumer spending, even as driven more broadly by changes in household wealth, is one example.

Engle's primary work improved the understanding of volatility, particularly in the stock market, and enabled economists to make more accurate forecasts. Previously, researchers were often forced to assume that volatility did not change over time.

"We worked together quite a bit," Granger said. "We helped each other, but we had a different focus."

The details of their work are highly technical, but the work's applications have spread well beyond the academy.

Allan M. Malz, head of research at RiskMetrics, a financial and software company in New York, said Engle's methods had spawned hundreds of new tools for analyzing stocks.

Engle and Granger began working together on the La Jolla campus of UCSD in the mid-1970s and helped build one of the world's best-known econometric programs.

Both became emeritus professors June 30 but continue to work with graduate students on campus, and Engle also holds an appointment at NYU's Stern School of Business.

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