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Engle, Granger Win Nobel Memorial Prize

Posted on: Wednesday, 8 October 2003, 06:00 CDT

American Robert F. Engle and Briton Clive W.J. Granger won the 2003 Nobel Memorial Prize in Economic Sciences for developing statistical tools that have improved the forecasting of rates of economic growth, interest rates and stock prices.

The Royal Swedish Academy of Sciences said Wednesday in announcing the award that the academics devised new methods for measuring volatility, or the rate at which prices, interest and other economic variables move up and down.

Engle's work in what is known as "economic time series" resulted in models that "have become indispensable tools not only for researchers, but for analysts on financial markets, who use them in asset pricing and in evaluating portfolio risk," the academy said.

It said Granger focused on nonstationary time series, which help analysts adjust their data for the long-term effects of short-term phenomena. This has improved research in areas such as wealth and consumption, exchange rates and price levels, as well as short- and long-term interest rates, the academy said.

Engle and Granger, who were colleagues for decades at the University of California at San Diego, will share the prize worth 10 million kronor ($1.3 million).

Granger, 69, a native of Swansea, Wales, retired from UCSD on June 30. He is currently a visiting scholar at Canterbury University in New Zealand.

Granger said he was only sure he had won the prize when a colleague called him from Sweden in the early hours of the New Zealand morning. Until then, the British economist thought the call from the Nobel committee could have been a hoax.

"I was delighted but I was hesitant, not quite knowing whether it was going to be a hoax. There have been some famous hoaxes in this situation," Granger told The Associated Press in a telephone interview.

He said the caller passed him to members of the committee who elected him for the prize, "and I know one of them rather well, so when I heard his voice I knew it wasn't a hoax so I was then cheerfully relaxed.

"I don't like being called at 3 a.m. - but I was happy to accept that particular call," he added.

UCSD said Granger was a graduate of the University of Nottingham and that "for more than three decades, he has been developing methods that help the understanding of the properties of time series data."

Engle, 60, a native of Syracuse, N.Y., taught in San Diego for 25 years before moving in 2000 to teach finance at the Stern School of Business at New York University. He currently is on sabbatical in Europe, where he is giving a series of lectures.

Reached by telephone at his home in Annecy, France, Engle told The Associated Press he was thrilled to receive the award. "It's the treat of a lifetime," he said. "I'm getting e-mails and messages from friends all over the world."

Engle, who earned his Ph.D. in economics at Cornell University in 1969, is the fourth consecutive American to receive the economics award since 2000.

He described his work as "a statistical approach to measuring volatility," which he said was especially important for calculating risk in the market and for valuing derivatives and other financial instruments.

In economic forecasting, he added, it helps to account for changes in inflation and other variables that affect the rate of growth in the gross national product of a nation.

Peter Englund, a banking and insurance professor at the Stockholm Institute for Financial Research, said the two men's research has helped economists and financial experts "measure and estimate volatility and how volatility varies over time," which is especially important in market analysis.

He added: "Granger has developed methods that help us model variables that follow trends over time and, in particular, to estimate relationships between such variables. One example would be exchange rates and relative price levels."

The economics prize is the only award not established in the will of Swedish industrialist Alfred Nobel, the inventor of dynamite. The medicine, physics, chemistry, literature and peace prizes were first awarded in 1901, while the economics prize was set up separately by the Swedish central bank in 1968.

Past awards have recognized research on topics ranging from poverty and famine to how multinational corporations reap profits, and theories on how people choose jobs and the welfare losses caused by environmental catastrophes.

Two Americans - Daniel Kahneman, 68, a U.S. and Israeli citizen based at Princeton University in New Jersey, and Vernon L. Smith, 75, of George Mason University in Fairfax, Va. - won last year's prize for pioneering the use of psychological and experimental economics in decision-making to make markets safer.

Also Wednesday, Americans Peter Agre and Roderick MacKinnon won the Nobel Prize in chemistry for studies of tiny transportation tunnels in cell walls, work that illuminates diseases of the heart, kidneys and nervous system.

The Nobel Peace Prize was to be announced Friday in Oslo, Norway.

The prizes are presented to the winners on Dec. 10, the anniversary of Nobel's death in 1896.

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On the Net:

Nobel site: http://www.nobel.se

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