Thomas Sargent

Thomas Sargent received the 2011 Nobel Prize in Economics along with Christopher Sims for their empirical research on cause and effect in the macroeconomy. Sargent is known for developing empirical methods to test the rational expectations hypothesis and for research on how inflation can be stopped quickly through credible fiscal-monetary regime changes (the "ends of four big inflations"). His work has contributed to understanding how economic agents form expectations and respond to policy changes, influencing both macroeconomic theory and central bank policy design. Sargent's application of rational expectations to the study of hyperinflations — showing that price stability could be achieved quickly through a credible fiscal commitment rather than requiring a prolonged recessionary adjustment — informed subsequent thinking about disinflation strategy at central banks. His work with Lars Peter Hansen on robust decision-making under model uncertainty also contributed to the theory of how policymakers should act when they have limited confidence in their economic models, a practically important problem given the pervasive model uncertainty in macroeconomic forecasting.