The 2006 Nobel Prize for Economics has been awarded to Edmund Phelps of Columbia University for his work in the late 1960s, which overturned the conventional wisdom that a stable relationship existed between inflation and unemployment.
Prof Phelps won the SKr10 million (€1 million) prize "for his analysis of the intertemporal trade-offs in macroeconomic policy", according to the Royal Swedish Academy of Sciences.
Although the prize was awarded for his demolition of simplistic interpretations of postwar Keynesian economics, experts pointed out that he had also criticised the radical free-market economic theories that became popular in the 1970s.
Traditionally the economics prize, which was inaugurated in 1969, has recognised work carried out many decades ago, but which still has relevance today.
Along with Milton Friedman, who won the prize in 1976, Prof Phelps challenged the notion that fine-tuning the economy was possible. He developed the idea that inflation depended not only on the level of unemployment, but also on how quickly companies and households expected prices and wages to rise.
He reasoned that if people and companies expected inflation to rise, they would demand higher wages and set prices higher, so inflationary expectations would become a self-fulfilling prophesy.
