The Royal Swedish Academy of Sciences reports that the 2022 Nobel Prize in Economics has been awarded to American economist Ben S. Bernanke, Douglas W. Diamond, and Philip H. Devig for “Research on Banking and Financial Crises”.
The jury said the US trio was honored for having “significantly improved our understanding of the role of banks in the economy, particularly during financial crises, as well as how financial markets are regulated.”
“Recent banking research sheds light on why banks exist, how to make them less vulnerable in crises, and how bank failures exacerbate financial crises. This research was founded by Ben Bernanke, Douglas Diamond, and Philip Debweg in the early eighties.”
The Swedish Foundation explained that “his analyzes were of great practical importance in regulating financial markets and dealing with financial crises.” “The award winners’ ideas have strengthened our ability to avert serious crises and costly bailouts,” said Tori Ellingsen, chair of the Economics Prize Committee.
Specifically, Ben Bernanke, Chairman of the United States Federal Reserve for two terms from 2006 to 2014, explained, “In a 1983 research paper, with statistical analysis and historical sources, that Bank panic led to bank failure and that And theThis was the mechanism that turned a relatively ordinary recession into the depression of the 1930s, the most dramatic crisis. John Hasler, a member of the Nobel Prize Committee for Economics, said:
The Academy commented on Bernanke’s research: “When banks collapsed, valuable information about borrowers was lost and could not be quickly recreated. Society’s ability to direct savings into productive investment was thus severely diminished.”
Moreover, his analysis showed which factors were important in the decline in GDP and found that “factors that were directly related to failed banks were responsible for most of the recession” that persisted thereafter.
Rumors and collapse
Meanwhile, Professors Diamond and Dibvig won the prestigious award because “She developed theoretical models explaining why banks exist, and how their role in society makes them vulnerable to rumors of their impending collapse. How can society reduce this vulnerability?
“If a large number of savers simultaneously rushed to the bank to withdraw their money, the rumor could become a prophecy: a bank run and the bank collapse,” the Nobel Committee said.
Both offered a solution to banking weakness, in the form of government deposit insurance. “When depositors know that the government has secured their money, they no longer need to run to the bank once rumors of a bank failure start.”
On the other hand, to the credit of the Swedish Academy, Diamond also showed “how banks play a socially important role. As intermediaries between savers and borrowers, the banks They are more willing to assess the creditworthiness of borrowers And making sure that the loans are used in good investments.
The trio joins the likes of Paul Krugman and Milton Friedman, previous winners of the award.
Most honorees in the past have been from the United States. Only two women were honored, Elinor Ostrom in 2009 and Esther Duflo in 2019.
The Nobel Prize in Economics is awarded by Royal Swedish Academy of Sciences, in Stockholm, Sweden. The prize is the last of the Nobel prizes announced, after winners were notified last week in the categories of medicine, physics, chemistry, literature and peace and will be awarded, like other prizes, on December 10.
In 1968, the Sveriges Riksbank (Sweden’s central bank) established the Economics Prize in memory of Alfred Nobel, the founder of the prizes.
The Economics Prize is based on a donation received by the Nobel Foundation in 1968 from Sveriges Riksbank on the bank’s 300th anniversary. The first Nobel Prize in Economics was awarded to Ragnar Frisch and Jan Tinbergen in 1969.
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