Two American economic professors shared 2011 Nobel Prize for Economics, announced Staffan Normark, Permanent Secretary of the Royal Swedish Academy of Sciences in Stockholm on Monday.

"The Royal Swedish Academy of Sciences has decided to award the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2011 to Thomas J. Sargent from New York University of USA and Christopher A. Sims from Princeton University of USA for their empirical research on cause and effect in the macroeconomy," said Normark.

This year's Laureates in economic sciences have developed methods for answering many questions regarding the causal relationship between economic policy and different macroeconomic variables such as GDP, inflation, employment and investments, the Nobel Committee said in a statement.

Policy affects the economy, but the economy also affects policy. The expectations of the private sector regarding future economic activity and policy influence decisions about wages, saving and investments.

Christopher A. Sims [File photo]?

Economic-policy decisions are influenced by expectations about developments in the private sector, the statement explained.

The Laureates' methods can be applied to identify these causal relationships and explain the role of expectations. This makes it possible to ascertain the effects of unexpected policy measures as well as systematic policy shifts, the statement said.

Sargent has shown how structural macroeconometrics can be used to analyze permanent changes in economic policy such as macroeconomic relationships when households and firms adjust their expectations concurrently with economic developments.

Sargent has also examined the post-World War II era, when many countries initially tended to implement a high-inflation policy, but eventually introduced systematic changes in economic policy and reverted to a lower inflation rate, according to the statement.

Sims has developed a method based on so-called vector autoregression to analyze how the economy is affected by temporary changes in economic policy and other factors.

Sims and other researchers have applied this method to examine, for instance, the effects of an increase in the interest rate set by a central bank.

It usually takes one or two years for the inflation rate to decrease, whereas economic growth declines can be reverted to its normal development at a slower pace.

The Nobel Committee said that although the two carried out their research independently, their contributions are complementary in several ways.

The laureates' seminal work during the 1970s and 1980s has been adopted by both researchers and policymakers throughout the world. Today, the methods developed by Sargent and Sims are essential tools in macroeconomic analysis, the committee said.

Born in 1943 in the United States, Sargent got his Ph. D from Harvard University in 1968 and is Professor of Economics and Business at New York University.

Sims is also a U.S. citizen and graduated from Harvard University in the same year as a Ph. D. He is Professor of Princeton University in the United States.

The two laureates will equally share the 10 million Swedish kronor (about 1.5 million U.S. dollars) prize.

The economics award, established in 1968 and officially called The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the last of the six prizes announced this year. It is not part of the original crop of Nobel Prizes set out in Alfred Nobel's 1895 will.