Christopher Sims, Nobel Laureate - Marginal REVOLUTION

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.