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The Nation

UC San Diego Colleagues Win Nobel

Two men share the economics prize for their work in improving data investigation and interpretation.

October 09, 2003|Peter G. Gosselin | Times Staff Writer

WASHINGTON — Two longtime UC San Diego colleagues won the Nobel Prize in Economics on Wednesday for, among other things, explaining the embarrassing fact that it's as easy to show a link between economic growth and sunspots as it is growth and interest rates.

Clive W. J. Granger, 69, and Robert F. Engle, 61, shared the Nobel for providing a set of statistical tools to distinguish between "stupid and non-stupid" relationships among economic statistics and for better estimating how far off a forecast may be, said Harvard economist James H. Stock.

Before their work, forecasters generally assumed that statistics like those for the gross domestic product bore an orderly relationship to such things as interest rates, money supply and consumption.

But their work convinced forecasters that many economic measures are much more random than previously thought and that "the vast majority of econometric research was, therefore, trash," said David Ingram, an international economist with the forecasting firm Economy.com.

"These are extraordinarily productive thinkers," said University of Rochester economist Charles I. Plosser, who co-wrote a 1982 paper that is credited with moving many of the issues the two men tackled to academic center stage.

"They developed techniques that have allowed economists to be much more sophisticated in investigating and interpreting economic data," Plosser said.

Granger, a native of Wales, was in New Zealand when the Royal Swedish Academy announced his selection. He told university officials who reached him there, "I was awakened ... in the middle of the night so I didn't get a great night's sleep." He professed to being "mildly surprised," as well as "delighted and honored."

Granger was described by fellow UC San Diego economist Halbert White as "old school," an avid tennis player and a San Diego Chargers football fan.

Engle, who left San Diego for New York University in 2000, said in a phone interview from a house he owns in France that he was "totally overwhelmed by the honor and very pleased to share it with Clive Granger."

He said he learned of the award after returning from lunch. He said he sat down with his wife and had a cup of coffee. White described Engle as an accomplished figure skater and competitive ice dancer, as well as a hiker and painter.

The UCSD economics department, where the men spent the bulk of their academic careers, is known as a powerhouse in econometrics, the use of statistics and mathematical methods to study economic phenomena.

The two were among a handful of economists considered potential Nobel winners, but their choice Wednesday was unexpected at least in part because econometricians won the prize only three years ago.

The pair will share the $1.3 million that accompanies the prize.

Both men worked on economic time series, chains of data that chart an economy's or a market's behavior over extended periods. They discovered that using traditional statistical techniques to analyze these series can produce wildly faulty results, and they invented new techniques to get around the problems.

In honoring Granger, the Nobel committee cited his "methods of analyzing economic time series with common trends."

Stock, the Harvard economist, described Granger's work this way: "Plot the distance between Mars and Earth against GDP and you'll get a seriously strong [statistical] relationship. But that's stupid; Mars doesn't have anything to do with growth.

"Now plot money supply or interest rates against GDP and you'll get another strong relationship, but this one isn't necessarily stupid.

"Granger gave us a rigorous way to distinguish stupid and non-stupid relationships."

The Nobel committee cited Engle "for methods of analyzing economic time series with time-varying volatility."

Ross Starr, another UCSD economist, said Engle's work permitted forecasters to predict how "bouncy" an economic statistic would be judging from its past behavior. The technique has proven especially important in financial markets where bounciness, or volatility, is a key measure of risk and therefore determines the price of stocks and bonds.

Granger was born in Swansea, Wales, and received his bachelor's degree and doctorate from the University of Nottingham. He is married with two children. He joined the UCSD faculty in 1974 and retired in June.

Engle was born in Syracuse, N.Y., received his bachelor's degree from Williams College, and a master's in physics and a doctorate in economics from Cornell University. He is married with two children. He joined the UCSD faculty in 1977 and became economics department chairman in 1994. He retained his UC appointment while at NYU. He also retired in June.

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Times staff writer Tony Perry in San Diego contributed to this report.

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