Nobel Prize: Ben Bernanke wins Nobel Prize

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Image Source: News in Germany

One of three people to receive this year’s Nobel Prize in economics is Ben Bernanke, who served as the head of the US central bank throughout the financial crisis of 2008.

According to the Royal Swedish Academy of Sciences, the trio is being honored for their study that has altered how we perceive financial crises.

The significance of preventing bank runs was the main topic of the work.

The academy claimed that the revelations had enhanced people’s capacity to avert major catastrophes and costly bailouts.

According to Mr. Bernanke’s research, bank runs in the 1930s contributed to the lengthening of the Great Depression. Later on, he used some of those lessons while leading the US Federal Reserve from 2006 to 2014.

When the financial crisis struck, he encouraged the Federal Reserve to act swiftly, cutting interest rates and assisting in the politically divisive rescues of some of America’s largest institutions.

When the Covid epidemic struck and several nations went into lockdown in 2020, the Fed and other central banks also employed the tools he had put in place to stabilize the economy.

According to award committee member and economist at Stockholm University John Hassler, the laureates have laid the groundwork for a contemporary understanding of why banks are necessary, why they are fragile, and what can be done to address these issues.

He also emphasized that, despite the financial crisis’ significant effects, neither it nor the Covid epidemic was to blame for the 1930s-style downturn.

Bank failures were seen as a result rather than the cause of the economic crisis in 1983 when Mr. Bernanke released his paper. His work reversed that conventional wisdom.

Along with economists Douglas Diamond and Philip Dybvig, Mr. Bernanke shares the honor.

Their research demonstrated the crucial role banks play in the economy and how regulation, such as deposit insurance, might lessen banks’ vulnerability to failure. The committee claimed that these insights serve as the cornerstone of contemporary banking regulation.

In presenting the prize, which comes at a time of increased global economic instability, Prof. Hassler stated that understanding financial crises continue to be a top concern.

Professor Diamond, who teaches at the University of Chicago, claimed that compared to 2008, the globe is far more prepared for financial disasters. But he added that there are still risks from unforeseen occurrences, particularly if people lose faith in the legitimacy of the system, like the spike in borrowing prices that rocked the UK last month when the government announced plans for tax cuts.

The greatest advice, he continued, is to be ready to ensure that your particular area of the banking industry is both regarded as sound and remains healthy, as well as to respond to changes in monetary policy in a measured and transparent manner.

The prize money, which totals 10 million Swedish krona ($885,000), will be divided among the three winners.

Prof. Diamond claimed that the award surprised him and that he had been “sleeping very well” when his phone rang to let him know he had won.

The Nobel Foundation administered the economics prize, which is the last to be announced yearly, despite not being one of the original Nobel Prizes.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was established in 1968, as opposed to the other Nobel prizes, which were established by Alfred Nobel’s testament in 1895.

Read Also: Nobel Prize in Physics Rewards Spooky Science 

Past winners of the Nobel Prize in Economics

Past winners, the bulk of whom were Americans, including Milton Friedman and Paul Krugman. It is unusual for a notable policymaker to get the award.

Mr. Bernanke, who received his doctorate from MIT and his undergraduate degree from Harvard, has previously held the position of an economics professor at Princeton and other universities. Additionally, he advised former president George W. Bush.

His current position at the Brookings Institution is as a senior fellow.

Prof. Dybvig teaches at Washington University in St. Louis, Missouri.