Edward C. Prescott
Nobel-winning economist who shaped dynamic macroeconomics and policy analysis.
Edward Christian Prescott (December 26, 1940 – November 6, 2022) was an American economist. He received the Nobel Memorial Prize in Economics in 2004, sharing the award with Finn E. Kydland, "for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles". This research was primarily conducted while both Kydland and Prescott were affiliated with the Graduate School of Industrial Administration (now Tepper School of Business) at Carnegie Mellon University. According to the IDEAS/RePEc rankings, he was the 19th most widely cited economist in the world in 2013. In August 2014, Prescott was appointed an Adjunct Distinguished Economic Professor at the Australian National University (ANU) in Canberra, Australia. Prescott died of cancer on November 6, 2022, at the age of 81.
- born
- December 26, 1940, in Glens Falls, New York
- died
- November 6, 2022, at age 81
- nationality
- American
- known_for
- Time consistency of economic policy, Hodrick–Prescott filter, real business cycl
Verified Timeline
Lore & Background
Prescott's Nobel-winning research, conducted primarily with Finn Kydland at Carnegie Mellon University, produced two key papers. The 1977 paper 'Rules Rather Than Discretion: The Inconsistency of Optimal Plans' argued that economic agents factor expected policy responses into their decisions, creating a credibility problem for policymakers. As Prescott and Kydland stated, "Even if there is a fixed and agreed upon social objective function and policy makers know the timing and magnitude of the effects of their actions... correct evaluation of the end-of-point position does not result in the social objective being maximized." The 1982 paper 'Time to Build and Aggregate Fluctuations' used a model to show that shifts in technology accounted for 70% of the fluctuation in output between the end of the Second World War and 1980. He is also well known for his work on the Hodrick–Prescott filter, used to smooth fluctuations in a time series. In August 2014, he was appointed an Adjunct Distinguished Professor at the Research School of Economics (RSE) of the Australian National University.
Reader's Guide
Edward C. Prescott's significance lies in his foundational contributions to dynamic macroeconomics, particularly the concepts of time consistency and real business cycles. His work with Kydland demonstrated that optimal economic plans can be inconsistent over time because policymakers face incentives to deviate from announced policies, leading to credibility issues. They illustrated this with a flood plain example: if the government says it will not provide flood protection, rational agents know that if they build houses there, the government will later provide protection — a moral hazard. This insight reshaped central banking and monetary policy design, influencing the adoption of rules-based frameworks. His research on business cycles, using models with microfoundations, shifted the focus from demand-side shocks to supply-side factors like technology, explaining a large share of output fluctuations. The Hodrick–Prescott filter remains a standard tool for economic analysis. Prescott's legacy endures through his influence on macroeconomic theory, policy evaluation, and the training of economists at institutions like Carnegie Mellon, the University of Minnesota, and Arizona State University.
Did You Know?
- Prescott received his bachelor's degree in mathematics from Swarthmore College in 1962, where he was a member of the Delta Upsilon fraternity.
- He earned a master's degree in operations research from Case Western Reserve University in 1963 and a PhD in economics from Carnegie Mellon in 1967.
- In January 2009, Prescott signed an open letter to President Barack Obama opposing the American Recovery and Reinvestment Act, sponsored by the Cato Institute.
- He was an economic advisor at the Federal Reserve Bank of Minneapolis from 1981 onward.
- Prescott was elected to the United States National Academy of Sciences in 2008.
Frequently Asked Questions
Who is Edward C. Prescott?
Edward Christian Prescott (1940–2022) was an American macroeconomist born in Glens Falls, New York, best remembered as a towering figure in dynamic macroeconomics. He shared the 2004 Nobel Memorial Prize in Economics with Finn E. Kydland and consistently ranked among the most cited economists worldwide.
What did Edward C. Prescott win the 2004 Nobel Prize for?
The Nobel committee recognized his and Kydland's work on the time-consistency problem in economic policy and on identifying the real driving forces behind business cycles. Their research reshaped how governments think about designing rules that remain credible over time.
What is the Hodrick–Prescott filter?
It is a widely used statistical technique that splits an economic time series—like GDP—into a smooth long-run trend and a short-run cyclical component. The filter is named jointly after Steven Hodrick and Prescott because of Prescott's foundational role in developing it.
What is real business cycle theory and why is Prescott associated with it?
Real business cycle theory argues that output fluctuations are primarily driven by real shocks such as technology changes, rather than by monetary disturbances. Prescott's general-equilibrium models provided a rigorous microfoundation for this view, making him one of the theory's central architects.
When and how did Edward C. Prescott pass away?
Prescott died on November 6, 2022, at the age of 81. His death marked the end of a career that fundamentally altered the tools and frameworks used in modern macroeconomic research and policy analysis.
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