>Press Release: The Bank of Sweden Prize in Economic Sciences in
>Memory of Alfred Nobel 2003
>
>8 October 2003
>
>The Royal Swedish Academy of Sciences has decided that the Bank of
>Sweden Prize in Economic Sciences in Memory of Alfred Nobel, 2003,
>is to be shared between
>
>Robert F. Engle
>New York University, USA
>
>"for methods of analyzing economic time series with time-varying
>volatility (ARCH)"
>
>and
>
>Clive W. J. Granger
>University of California at San Diego, USA
>
>"for methods of analyzing economic time series with common trends
>(cointegration)".
>
>
>
>Statistical Methods for Economic Time Series
>
>Researchers use data in the form of time series, i.e., chronological
>sequences of observations, when estimating relationships and testing
>hypotheses from economic theory. Such time series show the
>development of GDP, prices, interest rates, stock prices, etc.
>During the 1980s, this year's Laureates devised new statistical
>methods for dealing with two key properties of many economic time
>series: time-varying volatility and nonstationarity.
>
>On financial markets, random fluctuations over time - volatility -
>are particularly significant because the value of shares, options
>and other financial instruments depends on their risk. Fluctuations
>can vary considerably over time; turbulent periods with large
>fluctuations are followed by calmer periods with small fluctuations.
>Despite such time-varying volatility, in want of a better
>alternative, researchers used to work with statistical methods that
>presuppose constant volatility. Robert Engle's discovery was
>therefore a major breakthrough. He found that the concept of
>autoregressive conditional heteroskedasticity (ARCH) accurately
>captures the properties of many time series and developed methods
>for statistical modeling of time-varying volatility. His ARCH models
>have become indispensable tools not only for researchers, but also
>for analysts on financial markets, who use them in asset pricing and
>in evaluating portfolio risk.
>
>Most macroeconomic time series follow a stochastic trend, so that a
>temporary disturbance in, say, GDP has a long-lasting effect. These
>time series are called nonstationary; they differ from stationary
>series which do not grow over time, but fluctuate around a given
>value. Clive Granger demonstrated that the statistical methods used
>for stationary time series could yield wholly misleading results
>when applied to the analysis of nonstationary data. His significant
>discovery was that specific combinations of nonstationary time
>series may exhibit stationarity, thereby allowing for correct
>statistical inference. Granger called this phenomenon cointegration.
>He developed methods that have become invaluable in systems where
>short-run dynamics are affected by large random disturbances and
>long-run dynamics are restricted by economic equilibrium
>relationships. Examples include the relations between wealth and
>consumption, exchange rates and price levels, and short and
>long-term interest rates.
>
>
>
>Read more about this year's prize
>Information for the Public
>Advanced Information (pdf)
>Links and Further Reading
>
>------------------------------------------------------------------------
>
>Robert F. Engle, born in 1942 (60 years), in Syracuse, NY, USA
>(American citizen); Ph.D. from Cornell University in 1969; Michael
>Armellino Professor of Management of Financial Services at New York
>University, NY, USA.
>
>Clive W. J. Granger, born 1934 (69 years), in Swansea, Wales
>(British citizen); Ph.D. from University of Nottingham in 1959;
>emeritus Professor of Economics at University of California at San
>Diego, USA.
>
>The Prize amount: SEK 10 million, will be shared equally among the Laureates.
>
>Contact persons: Katarina Werner, Information assistant,
>phone +46 8 673 95 29, katarina at kva.se and Eva Krutmeijer, Head of
>information, phone +46 8 673 95 95,
>+46 709 84 66 38, evak at kva.se
>
>