Finn Kydland, born in 1943, Nobel Prize-winning Norwegian economist noted for his contributions to the field of macroeconomics. Kydland was particularly noted for his work with American economist Edward C. Prescott regarding factors that drive the business cycle and how changes in short-term economic policies can negatively impact long-term goals.
Kydland earned his bachelor’s degree in 1968 from the Norwegian School of Economics and Business Administration in Bergen, Norway. In 1973 he earned his Ph.D. in economics from Carnegie Mellon University in Pittsburgh, Pennsylvania.
At Carnegie Mellon, Kydland began collaborating with Prescott, who acted as his thesis advisor. The two men coauthored several articles in the 1970s and 1980s. They were recognized for this work by being awarded the Nobel Prize in economics in 2004. Kydland taught economics at Carnegie Mellon beginning in 1978. In 2004 he became a visiting professor at the University of California at Santa Barbara.
The Royal Swedish Academy of Sciences, which selects the Nobel winners in economics, recognized Prescott and Kydland for their time consistency theory and for advancing a new understanding of the driving forces behind business cycles. Their writings on the business cycle, however, are controversial among many economists.
In a 1982 paper the two men challenged the theories of British economist John Maynard Keynes who held that since business investment necessarily fluctuates, a high level of employment and steady income cannot be maintained without government intervention. Prescott and Kydland countered that the business cycle is due to changes, or “shocks,” that affect supply, such as a sharp decrease in the oil supply, leading to recession, or a technological innovation that boosts productivity, leading to growth. Their most controversial contention was that shocks responsible for an economic downturn cause people to allocate more time to leisure than to work. The Nobel Prize-winning economist Paul Samuelson, a leading Keynesian, ridiculed the idea, saying it implied that during the Great Depression “folks everywhere developed a desire to substitute leisure for good paychecks.”
The time consistency theory, which was outlined in a 1977 paper, focused on economic policies, particularly those of central banks. Prescott and Kydland argued that central banks need to be consistent in their policies over time so that long-term goals, such as controlling inflation, can be achieved. If rules are announced but then changed to accommodate a short-term need, then the likelihood of meeting the long-term goal is compromised, the two men wrote.
