ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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2004 Economics Nobel: The Two Insights of Kydland and Prescott

Finn Kydland and Edward Prescott have given economics the notions of time-inconsistency and its normative corollary, pre-commitment, which suggest that governments must adopt credibility-enhancing mechanisms, such as following rules set in advance, to overcome the problem of their own costly discretion. Their work on real business cycle theory has left an important methodological legacy although the theory itself has become something of a fringe movement in academe.

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