This morning, it was announced that Thomas Sargent and Christopher Sims are the winners of the 2011 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (link to New York Times article here; link to official Nobel economics site here). Sargent and Sims’s approach is often thought to imply, among other things, that monetary or fiscal stimulus is unlikely to be of very much benefit to an economy, even one in deep recession.  Of course, the Levy Institute, as a proponent of the Keynesian approach, almost always disagrees strongly with this view on macroeconomic policy, though extreme pessimism about Keynesian stabilization policies is only one possible implication of Sargent and Sims’s extensive oeuvres.

Moreover, the technical aspects of Sargent and Sims’s work are also crucial to neoclassical macroeconomics, and their influence is felt in many ways. Of special interest to me as a researcher is their work on vector autoregressions (VARs), which has led to literally thousands of studies in academic journals, even some authored by heterodox economists. (Sims’s seminal contributions to the VAR literature are the main Sims accomplishment cited in the Nobel committee’s “scientific background” paper for today’s announcement.)

Nonetheless, as with any research in the social sciences, the VAR approach to empirical work in macroeconomics has been subjected to many critiques and revisions since Sims (and to some extent Sargent) got the VAR ball rolling in the late 1970s and early 1980s. I am among the many economists who have been involved in critical work on various macroeconomic applications of VAR techniques. More specifically, I have been interested in structural VAR (also known as SVAR), which is often used in attempts to estimate the typical impact of surprise changes to economic policy and other macroeconomic “shocks.”  In the world of neoclassical macro modeling, random shocks of this nature are usually thought to be the driving force behind the business cycle.

So that is what I have been talking about.

(Some more links: Economists and others with a wonky bent may be interested in Duo Qin’s recent article on the history of VARs and their context, including other approaches to empirical macro. Link to working paper version of Qin’s paper here and to published version here.  Also for a technical audience, the August 2011 version of my working paper on SVARs is at this link.)