Edmund S. Phelps was awarded the Nobel Memorial Prize in Economic Sciences by the Royal Swedish Academy of Sciences for his work in explaining the relation between the short- and long-run effects of economic policy. Mr. Phelps, a professor of political economy at Columbia University, has had an important impact on economic research, including investment strategy, said Paul D. Kaplan, vice president-quantitative research, Morningstar.
"(Mr.) Phelps' work is important in understanding the short-term and long-term impact of the Fed's actions affecting interest rates, Mr. Kaplan said. "(Mr.) Phelps' work is important to us today in investment analysis because it helps us disentangle the relationship between expected and unexpected inflation and between real and nominal interest rates and the long- and short-run impacts on the real economy, the unemployment rate, the level of economic activity and equity prices and bond prices.
Mr. Phelps has been a leader of the "movement that macroeconomic theory has to be grounded in microeconomics, how economic participants behave, Mr. Kaplan said. "That is what good investment theory is: what motivates investors and how people go about building portfolios.
Bruce I. Jacobs, principal, Jacobs Levy Equity Management, noted that in regard to his firm's investment: "As opposed to previous finance-oriented Nobel laureates Harry Markowitz, Merton Miller, William Sharpe, Myron Scholes and Robert Merton, (Mr.) Phelps' work on inflation and unemployment has had a large impact on policy-making, but intersects our own work only in a secondary manner, in as much as we employ inflation rates as one of a number of macroeconomic variables with possible effects on security prices.