Nobel Memorial Prize in Economic Sciences

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• The Nobel Memorial Prize in Economic Sciences was awarded to Ben S Bernanke, the former chair of the US Federal Reserve, and two other academics (Douglas W. Diamond and Philip H. Dybvig)  for research into banks and financial crises.

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• The work for which Ben Bernanke, Douglas Diamond and Philip Dybvig are being recognised has been crucial to subsequent research that has enhanced our understanding of banks, bank regulation, banking crises and how financial crises should be managed.
• Ben Bernanke’s Contribution:
  • He analysed the Great Depression of the 1930s, the worst economic crisis in modern history. 
  • Among other things, he showed how bank runs were a decisive factor in the crisis becoming so deep and prolonged. 
  • Using historical sources and statistical methods, Bernanke’s analysis showed which factors were important in the drop in gross domestic product. He found factors that were directly linked to failing banks accounted for the lion’s share of the downturn.
• Douglas W. Diamond and Philip H. Dybvig’s Contributions:
  • They developed theoretical models that explain why banks exist, how their role in society makes them vulnerable to rumours about their impending collapse and how society can lessen this vulnerability.
  • They presented a solution to bank vulnerability, in the form of deposit insurance from the government. When depositors know that the state has guaranteed their money, they no longer need to rush to the bank as soon as rumours start about a bank run.

Unlike the other prizes, the economics award wasn’t established in Alfred Nobel’s will of 1895 but by the Swedish central bank in his memory.  The first prize in economic sciences was awarded to Ragnar Frisch and Jan Tinbergen in 1969.

Source:BS