Sargent is one of the leaders of the "rational expectations revolution," which argues that the people being modeled by economists can predict the future, or the probability of future outcomes, at least as well as the economist can with his model. Rational expectations was introduced into economics byJohn Muth,[8] thenRobert Lucas, Jr., andEdward C. Prescott took it much farther. In work written in close collaboration with Lucas andNeil Wallace, Thomas J. Sargent contributed fundamentally to the evolution ofnew classical macroeconomics.[9]
Sargent's main contributions to rational expectations were these:
trace the implications of rational expectations, with Wallace, for alternative monetary-policy instruments and rules on output stability and price determinacy.[10]
help make the theory of rational expectations statistically operational.[11]
conduct severalhistorical studies that put rational expectations reasoning to work to explain consequences of dramatic changes in macroeconomic policy regimes.[17][18][19][20]
using the notion of aself-confirming equilibrium, a weaker notion of rational expectations suggested by limits of learning models.[23]
studying contexts withLars Peter Hansen in which decision makers do not trust their probability model. In particular, Hansen and Sargent adapt and extend methods fromrobust control theory.[24]
Sargent has also been a pioneer in introducingrecursive economics to academic study, especially for macroeconomic issues such as unemployment, fiscal and monetary policy, and growth. His series of textbooks, co-authored withLars Ljungqvist, are seminal in the contemporary graduate economics curriculum.
Sargent has pursued a research program with Ljungqvist[25] designed to understand determinants of differences inunemployment outcomes in Europe and the United States during the last 30 years. The two key questions the program addresses are why, in the 1950s and 1960s, unemployment was systematically lower in Europe than in the United States and why, for two and a half decades after 1980,unemployment has been systematically higher in Europe than in the United States. In "Two Questions about European Unemployment," the answer is that "Europe has stronger employment protection despite also having had more generous government supplied unemployment compensation"." While the institutional differences remained the same over this time period, the microeconomic environment for workers changed, with a higher risk ofhuman capital depreciation in the 1980s.[26]
Sargent is known as a devoted teacher. Among his PhD advisees are men and women at the forefront of macroeconomic research[who?]. Sargent's reading group at Stanford and NYU is a famous institution among graduate students in economics.[30][31]
In 2016, Sargent helped found the non-profitQuantEcon project, which is dedicated to the development and documentation of modern open source computational tools for economics, econometrics, and decision making.[32]
Currently he is director of the Sargent Institute of Quantitative Economics and Finance (SIQEF) at Peking University HSBC Business School in Shenzhen.[33]
Interview with Thomas J. Sargent after his Nobel lecture
On October 10, 2011, Sargent, withChristopher A. Sims, was awarded theNobel Memorial Prize in Economic Sciences. The award cited their "empirical research on cause and effect in the macroeconomy".[34] His Nobel lecture, "United States Then, Europe Now," was delivered on December 11, 2011.[35][36]
He is featured playing himself in a television commercial forAlly Financial in which he is asked if he can predict CD rates two years from now, to which he simply answers, "No."[37]
Sargent is notable for making short speeches. For example, in 2007 his Berkeley graduation speech consumed 335 words.[38][39]
Sargent, Thomas J. (1971). "A Note on the Accelerationist Controversy".Journal of Money, Credit and Banking.3 (3):721–25.doi:10.2307/1991369.JSTOR1991369.
Sargent, Thomas & Wallace, Neil (1975). "'Rational' Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule".Journal of Political Economy.83 (2):241–54.doi:10.1086/260321.S2CID154301791.
Sargent, Thomas J. & Neil Wallace (1981). "Some Unpleasant Monetarist Arithmetic".Federal Reserve Bank of Minneapolis Quarterly Review.5 (3):1–17.
Sargent, Thomas J. (1983). "The Ends of Four Big Inflations" in:Inflation: Causes and Effects, ed. by Robert E. Hall, University of Chicago Press, for the NBER, 1983, pp. 41–97.
Sargent, Thomas J. andAlbert Marcet (1989). "Convergence of Least Squares Learning Mechanisms in Self-Referential Linear Stochastic Models".Journal of Economic Theory.48 (2):337–68.doi:10.1016/0022-0531(89)90032-X.
Sargent, Thomas J. & Albert Marcet (1989). "Convergence of Least Squares Learning in Environments with Hidden State Variables and Private Information".Journal of Political Economy.97 (6): 251.doi:10.1086/261603.S2CID154864867.
Sargent, Thomas J. & Lars Ljungqvist (2000).Recursive Macroeconomic Theory. MIT Press.ISBN978-0-262-12274-0.
Sargent, Thomas J. & Lars Hansen (2001). "Robust Control and Model Uncertainty".American Economic Review.91 (2):60–66.doi:10.1257/aer.91.2.60.
^Muth, J. F. (1961). "Rational Expectations and the Theory of Price Movements".Econometrica.29 (3):315–35.doi:10.2307/1909635.JSTOR1909635.
^Galbács, Peter (2015).The Theory of New Classical Macroeconomics. A Positive Critique. Contributions to Economics. Heidelberg/New York/Dordrecht/London: Springer.doi:10.1007/978-3-319-17578-2.ISBN978-3319175782.
^Sargent, Thomas J., and Neil Wallace, 1975. "'Rational' Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule,"Journal of Political Economy, 83(2), pp.241–54.
^Sargent, T.J. (1977). "The Demand for Money during Hyperinflations under Rational Expectations: I".International Economic Review.18 (1):59–82.doi:10.2307/2525769.JSTOR2525769.
^Sargent, T.J.; Fand, D.; Goldfeld, S. (1973). "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment".Brookings Papers on Economic Activity.1973 (2):429–80.doi:10.2307/2534097.JSTOR2534097.
^Sargent, Thomas J. & Neil Wallace (1981). "Some Unpleasant Monetarist Arithmetic".Federal Reserve Bank of Minneapolis Quarterly Review.5 (3):1–17.
^Sargent, Thomas J. (1983). "The Ends of Four Big Inflations" in:Inflation: Causes and Effects, ed. by Robert E. Hall, University of Chicago Press, for the NBER, 1983, p. 41–97.
^Sargent, T.J.; Velde, F.O.R. (1995). "Macroeconomic Features of the French Revolution".The Journal of Political Economy.103 (3):474–518.doi:10.1086/261992.S2CID153904650.
^Sargent, Thomas J. (1992).Rational Expectations and Inflation. Harper and Row.ISBN978-0065002805.
^Sargent, Thomas J.; Velde, F.R. (2003).The Big Problem of Small Change. Princeton University Press.ISBN978-0691116358.
^Sargent, Thomas J. (1993).Bounded Rationality in Macroeconomics. Oxford University Press.ISBN978-0198288695.Description and chapter-preview 1st-pagelinks.
^Marcet, A. (1989). "Convergence of least squares learning mechanisms in self-referential linear stochastic models*1".Journal of Economic Theory.48 (2):337–68.doi:10.1016/0022-0531(89)90032-X.
^abSargent, Thomas J. (1999).The Conquest of American Inflation. Princeton University Press.ISBN978-0691004143.
^Hansen, Lars Peter; Sargent, Thomas J. (2008).Robustness. Princeton University Press.ISBN978-0691114422.
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