Americans Thomas Sargent of New York University and Christopher A. Sims of Princeton University have won the Nobel prize in economics for their work elucidating the impact of changes in government policies or economic shocks on a nation's economy.

Sargent and Sims, both aged 68, will share the USD 1.49 M prize that comes with the award, the Royal Swedish Academy of Sciences said Monday in Stockholm.

Their research, conducted separately in the 1970s and '80s, helped better explain the importance of people's expectations for the workings of policy, the Washington Post reported.

The work of the two American economists is highly relevant today as world governments are struggling to steer their economies away from the global downturn.

According the Royal Swedish Academy of Sciences's media statement, Thomas Sargent has shown how structural macroeconometrics can be used to analyze permanent changes in economic policy.

His research can be used to study macroeconomic relationships when households and firms adjust their expectations concurrently with economic developments.

Christopher Sims has developed a method based on so-called vector autoregression to analyze how the economy is affected by temporary changes in economic policy and other factors.

Sims and other researchers have applied this method to examine, for instance, the effects of an increase in the interest rate set by a central bank.

They have concluded that it usually takes one or two years for the inflation rate to decrease, whereas economic growth declines gradually already in the short run and does not revert to its normal development until after a couple of years.

In 1968, Sveriges Riksbank (Sweden's central bank) established the Prize in Economic Sciences in Memory of Alfred Nobel, founder of the Nobel Prize.

The Prize is based on a donation received by the Foundation in 1968 from Sveriges Riksbank on the occasion of the Bank's 300th anniversary.

Each prize consists of a medal, personal diploma, and a cash award.

The Prize in Economic Sciences in Memory of Alfred Nobel has been awarded 42 times to 67 Laureates between 1969 and 2010.

It is bestowed by the Royal Swedish Academy of Sciences, Stockholm, Sweden, according to the same principles as for the Nobel Prizes that have been awarded since 1901.

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