Edward C. Prescott

Edward C. Prescott was an American macroeconomist who helped develop real business cycle theory and shared the 2004 Nobel Memorial Prize in Economic Sciences.

Real business cycle theory: A macroeconomic theory that explains fluctuations mainly through changes in productivity and other real shocks. Prescott co-developed this account of business cycles with Finn Kydland.
Finn E. Kydland: A Norwegian-American economist who shared the 2004 Nobel Prize with Edward C. Prescott. Kydland and Prescott jointly developed influential work on time consistency and business cycles.
Time consistency: A property of a plan whose optimality remains intact as the future arrives. Prescott’s work showed why governments may abandon policies they previously promised to follow.
Keynesian economics: A tradition emphasizing aggregate demand and economic rigidities in explaining fluctuations. It commonly assigns downturns a different cause than Prescott’s productivity-shock account.
Dynamic stochastic general equilibrium: A framework modeling economies over time through decisions by households and firms under uncertainty. Prescott’s business-cycle research helped establish this modeling approach in macroeconomics.
Robert E. Lucas Jr.: An American economist whose rational-expectations research reshaped macroeconomic theory. Lucas’s equilibrium approach formed part of the intellectual background to Prescott’s work.
Monetary policy: Central-bank actions that influence money, interest rates, and economic conditions. The time-consistency problem applies directly to monetary-policy commitments.
New Keynesian economics: Macroeconomic theory combining optimizing behavior with price or wage rigidities. Its nominal rigidities contrast with the flexible-price emphasis of standard real business cycle models.
Intertemporal choice: Decision-making that weighs costs and benefits occurring at different times. His models analyze how households and firms adjust choices across time.
Thomas J. Sargent: An American economist known for research on rational expectations and macroeconomic policy. Sargent’s work developed methods and questions closely connected to Prescott’s macroeconomics.

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Robert Lucas Jr.Related: Prescott’s research developed equilibrium methods that grew alongside Lucas’s program.