American Edmund Phelps has won the 2006 Nobel prize for economics for research into the interplay between prices, unemployment and inflation expectations, the Royal Swedish Academy of Sciences said today.
Mr Phelps, of Columbia University, won for work in the 1960s that challenged an assumption that policy-makers could target either low inflation or low unemployment, but not both.
The 73-year-old economist showed that wage and price trends depend on inflation expectations as well as the health of the job market, the academy said as it announced the award worth 10 million Swedish crowns ($1.37 million).
Americans have swept all the Nobels announced so far this year. Asked how he felt about winning, Mr Phelps said: "It feels better and better as it begins to sink in that I have won this wonderful award. It's great."
"There was a part of me that had been expecting it. I have understood that it could happen. But I had no idea when it could happen and if it could happen."
In his research, Mr Phelps suggested that in setting prices and negotiating wages, employers and workers make judgements about future inflation that in turn influence the inflation outcome.
"As a consequence, the long-run rate of unemployment is not affected by inflation but only determined by the functioning of the labour market," the academy said in a statement.
"Phelps's work has fundamentally altered our views on how the macroeconomy operates," it added.
The academy said the theoretical framework
Mr
Phelps developed in the late 1960s helped economists understand the causes of soaring prices and unemployment in the 1970s.
The prize, which is known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was not in the original list of awards set up by the Swedish dynamite millionaire.
It was added later by the Swedish central bank and first awarded in 1969. The hotly anticipated literature Nobel winner will be revealed on Thursday, followed by Friday's announcement in Oslo of the 2006 Nobel laureate for peace.