Robert Lucas's Nobel Memorial Prize

Abstract

Robert Lucas has made important contributions in several areas of economics, among them the theories of growth, investment, and asset pricing. But he is best known and most influential his work in macroeconomic theory and policy, and it was these contributions that Lucas was awarded the 1995 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for having developed and applied the hypothesis of rational expectations, and thereby having transformed macroeconomic analysis and deepened our understanding of economic policy. Lucas was the founder and the dominant figure of the rational expectations revolution that swept macroeconomics in the 1970s. His contribution was both to clearly define and forcefully argue the inadequacies of existing approaches to macroeconomics and, more significantly, to set out an alternative analytic approach the rational expectations-equilibrium approach that has become mainstream in advanced academic macroeconomics. Over time, it has become clear that while rational expectations has been the most important contribution to the analysis of economic policy, the equilibrium approach is the more important contribution to macroeconomic analysis. The success of the revolution also owes much to Thomas Sargent, whose econometric implementation of the rational expectations approach was critical to its success in providing an alternative macroeconomic research program; to Edward Prescott, Lucas's co-author on several important papers, also jointly responsible introducing the notion of dynamic inconsistency to macroeconomics; to Robert Barro, his influential empirical work on the Lucas supply function and further development of the equilibrium approach; and to others including John Taylor and Neil Wallace.

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