Christopher Sims, Nobel Laureate

by on October 10, 2011 at 8:40 am in Economics | Permalink

Here is Sim’s home page, lots of content.  Here is his Wikipedia page.  Here is Sims on scholar.google.com.  Here is a video of Sims speaking.  Sims is currently at Princeton but most closely associated with the University of Minnesota.  Basically this is a prize in praise of Minnesota macro, fresh water macro of course, and lots of econometrics.  Think of Sims as an economist who found the traditional Keynesian methods “just not good enough” and who worked hard to improve them.  He brought a lot more rigor into empirical macro and he helped define a school of thought at the University of Minnesota.  His influence will endure.  Some of his results raised the status of the “real shocks” approach to business cycles, although I think of Sims’s work as more defined by a method than by any set of conclusions.

I think of Sims as having three major contributions: vector autoregression as a macroeconomic method, impulse response functions, and deep examinations of money-income causality.  Via Tim Harford, here are powerpoint slides on the first two, first rate presentation.  If you know some math, this is the place to go on Sims.

Here are Jim Hamilton’s mathematical notes on impulse response functions.  It has helped economists sort out the differences between expected and unexpected shocks and it has become a regular part of the macroeconomic toolkit.  The Swedes give a simple — perhaps too simple — exposition of impulse response functions.  Wikipedia has a simple introduction:

In signal processing, the impulse response, or impulse response function (IRF), of a dynamic system is its output when presented with a brief input signal, called an impulse. More generally, an impulse response refers to the reaction of any dynamic system in response to some external change. In both cases, the impulse response describes the reaction of the system as a function of time (or possibly as a function of some other independent variable that parameterizes the dynamic behavior of the system).

Here is one good brief survey of VAR techniques.  Here is another: tough stuff!  Here is one of Sim’s seminal papers related to VAR techniques.  Basically this stuff is saying we don’t know as much as we might like to think we do, most of all about macroeconomics.  It is suggested that empirical work proceed with extreme caution and that we should see what we can scoop out of the data in a robust fashion.

He has done serious work on extending concepts of Granger causality; in this context the question is whether money causes output or is it output causing money?  Sims’s empirical techniques helped bring people to the conclusion that it was often output causing money and in the 1980s this was a revelation of sorts (though not a new idea to economics).

Here are his files on the topic of rational inattention, coming out of Shannon’s communications theory, not what he is best known for but he has made contributions in that area as well.  In this paper he tries to show how rational inattention can give rise to partially Keynesian results.  With Sargent, he also has contributions to the fiscal theory of the price level.

Here is a 2007 interview with Sims, quite accessible.  He says that monetary policy doesn’t matter as much as you think.  He does favor explicit monetary targets, and he worries about the fiscal foundations of the euro.  Here is a more technical interview, on statistics, Bayesian reasoning, and GMM, it’s Sims putting some of the math into words, sort of.

Overall: Sims is one of the most important figures in macro econometrics in the last thirty years, if not the most important.  He clearly deserves a Nobel Prize.

Barkley Rosser October 10, 2011 at 8:51 am

I think this is a well-deserved prize. Both men have clearly been on the A list for some time.

However, regarding the remark about this being a prize for “Minnesota macro,” one needs to be a bit careful. Both men were at Minnesota and interacted with each other there. However, neither has been there for some time, and remarks they have made more recently, particularly by Sargent, have indicated some unease with what has gone on at Minnesota more recently. If say Chari and Prescott represent the harder line more recent RBC approach that continues to insist on assuming ratiional expectations, then indeed Sargent and Sims represent an older and softer and more sophisticated approach that has indeed moved on beyond such simplicities.

BTW, this clearly shows the influence of the current committee chair, Per Krusell, a fan of Minnesoat macro, who probaby had strong support from Timo Terasvirta on the committee for this well-deserved award.

Lou October 11, 2011 at 8:14 am

Terasvirta was not on the committee this year. The members can be found here:

http://www.nobelprize.org/nobel_prizes/economics/prize_awarder/committee.html

Andy October 10, 2011 at 10:26 am

Sims and Sargent surely deserved the prize, but I am surprised that Lars Hansen was not included. Note that Sims’ technical interview (last link atm) is primarily about how Lars did a lot of work to understand GMM.

Enda H October 10, 2011 at 3:18 pm

If Hansen had also won the Prize, Ken Singleton would be need to be there too.

And they need to give it to Singleton on his own.

drtaxsacto October 10, 2011 at 10:57 am

Thanks for the posts on Sims and Sargent. They are very helpful in putting the material in context.

prior_approval October 10, 2011 at 11:11 am

‘It has helped economists sort out the differences between expected and unexpected shocks and it has become a regular part of the macroeconomic toolkit.’
The toolkit that has been so successfully on display the last couple of years, years marked by both expected and unexpected shocks?

Still the best satire site on the web.

Inquisitor October 13, 2011 at 10:44 am

I know right.

Robert Miner October 10, 2011 at 12:38 pm

First sentence: correct “Sim’s to “Sims'” or even “Sims’s.”

JohnGalt October 10, 2011 at 4:01 pm

Funny, if VAR even once, with it’s tremendous capacity to overfit, showed any signs of predicting better than the giant Rand-Brookings econometric monstrosities of the 60s it was designed to replace, this Nobel might even be warranted. But, nope, fail.

mulp October 10, 2011 at 11:42 pm

I liked the comment from one of them to the media to the effect “no, we don’t know how to fix the economy – if we did, we would have been telling everyone how for two years”.

Thoma Hawk October 11, 2011 at 12:48 am

Who ever seriously thought that trillions of individual transactions motivated every day by billions of self interested and differently situated and informed entities could be summarized into a nice, neat recipe for the statist cooks to follow for the benefit of….. Who, exactly?

simmmo October 11, 2011 at 1:32 am

Can we really say that this year’s prize is aligned to one spectrum of economics? I think these guys were awarded the prize for methodological advancements, not for specific conclusions about policy.. They both may lean towards freshwater, but the tools they developed have been used accross the spectrum – particularly with Sims.

Simonscat October 11, 2011 at 5:59 am

This guy really changed my view to macroeconomics that I’ve studied at the university. Thanks for sharing the interview with Sims. It is especially interesting in the time of crisis in our country.
Jane from ACCA Courses

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