OSLO, Oct 11 (AFP) - Norwegian economist Finn Kydland, who won the Nobel Economics Prize on Monday with US colleague Edward Prescott, said he was delighted to have received the honour, which he described as "the ultimate recognition."
"It's really fantastic," Kydland told Norwegian public radio NRK.
"The Nobel Economics Prize is the ultimate recognition in the field of economic sciences," he said.
Kydland was giving a speech at his alma mater, the Norwegian School of Economics and Business Administration in Bergen, when he was informed that he had been awarded the coveted prize.
Kydland and Prescott were honoured for business cycle research that has helped reform monetary policy in numerous countries.
The pair showed in two papers published in 1977 and 1982 that economic policymakers who have said they are in favor of low inflation but who cannot commit to a rule in advance will often inadvertently conduct a policy that will cause high inflation.
The pair called this "the time consistency problem", pointing out that policy regarded as the best option to lower inflation in advance will often not be implemented later on when expectations and private behavior have already been shaped.
When governments fail to follow through on stated low inflation objectives, their policies lose credibility, resulting in "high and self-fulfilling inflationary expectations".
"A lot of people make decisions based on what they think the government is going to do in the future," Kydland said.
"So it's important for a government to follow the rules so people can have faith in them," he said.
He said the Nobel Prize came as a surprise.
"Some people said that we were in the running for the prize but I didn't really take it seriously. Maybe I should have," he told the online edition of local daily Bergens Tidende.
Kydland is the third Norwegian to receive the Nobel Economics Prize since it was first handed out in 1969.