Chronicle of Higher Education - web daily - October 8, 2003
2 Scholars Who Revolutionized Statistical Modeling Are Awarded the Nobel in Economics By DAVID GLENN
The Nobel Memorial Prize in Economic Science was awarded today to two scholars who revolutionized the technique of statistically modeling national economies, stock markets, and other complex systems that evolve over time.
Robert F. Engle, 60, a professor of finance at New York University's Leonard N. Stern School of Business, and Clive W.J. Granger, 69, an emeritus professor of economics at the University of California at San Diego, worked separately and together during the 1980s on the problem of mathematically describing markets that are subject to shocks and fluctuations. The two scholars will share a prize of $1.3-million and will receive their awards in December.
Mr. Engle was born in Syracuse, N.Y., and earned a Ph.D. in economics from Cornell University in 1969. He is best known for the concept of autoregressive conditional heteroskedasticity, commonly referred to as ARCH. The technique allows scholars to assess systems, such as financial markets, whose volatility varies over time.
Mr. Granger was born in Wales and earned a Ph.D. in economics from the University of Nottingham in 1959. Much of his work is purely mathematical, but he has always been interested in the applications of his models. In 1964, he was an author of a paper that presented a statistical model of the relationships among personality disorders and "certain adverse childhood influences." And last year, he was the lead author of a book that offered a complex dynamic model of deforestation in Brazil, encompassing the relationships among local income, road paving, and government agricultural subsidies (The Chronicle, February 7).
"These are great choices," said Steven N. Durlauf, a professor of economics at the University of Wisconsin at Madison and a member of the editorial board of the Journal of Applied Econometrics. "They've made fundamental contributions in a number of areas. Granger has been a pioneer in identifying the sorts of statistics that one can derive from time-series data like gross national product. Engle developed a way of understanding the underlying volatility in economic data."
The two scholars' most influential work, said Mr. Durlauf, involves the concept of cointegration -- a technique for analyzing time series that do not tend to hover around a particular value. "The idea there is to ask how we can identify long-run relationships between economic variables," said Mr. Durlauf. "There can be lots of ups and downs between two data series" -- for example, gross national product and the median wage. "But are there forces that over the long run cause them to move together?" he said. "They were two of the pioneers in formalizing that literature, which has proved to be of enormous importance in thinking about macroeconomics."
The prize, which is formally known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, is not one of the five original awards designated in the will of the Swedish inventor in 1895. The economics prize was established in his honor in 1968 by the Bank of Sweden.