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But Sargent argued that inflation could be tamed much faster if central banks acted decisively to dispel public expectations that prices would continue to rise rapidly.

That’s basically what happened shortly afterward: Paul Volcker, then the Federal Reserve chairman, shattered inflation expectations by raising rates sharply and quickly. Expectations of inflation, it turned out, were even more important than inflation itself in shaping economic behavior.

Economists are at a disadvantage compared with researchers in many other fields. They can’t experiment on economies the way scientists experiment with laboratory rats or chemicals.

“We’ve got to glean it from the information that’s out there,” said Art Rolnick, former director of research at the Federal Reserve Bank of Minneapolis.

Before Sims and Sargent, many economists had underestimated the complexity with which businesses and people respond to economic events and government actions. The two showed how hard it is to predict public responses to policy changes.

“People form their own ideas about what’s going to happen independently of what the economists say is going to happen,” said David Warsh, an author who writes the blog Economic Principles.

Sims reached the surprising conclusion that interest-rate changes engineered by the Fed and other central banks typically have less effect on the economy than previously thought. On the other hand, policies that involve taxes and spending tend to play a bigger role than many economists had assumed.

“They’ve really been giants in the field,” Rolnick said. “The fundamental insights they had over the years radically affected the way we thought about policy at the Fed.”

“It is not an exaggeration to say that both Sargent’s and Sims‘ methods are used daily … in all central banks that I know of in the developed world and at several finance departments too,” Nobel committee member Torsten Persson told the AP.

Warsh said their work is helping policymakers who are trying to determine whether governments should be cutting deficits or spending more to help invigorate the global economy.

In a way, their message is sobering for policymakers and central bankers: Because people and businesses often don’t respond to policy changes predictably, “attempts to intervene in the economy are more complicated than we thought,” said Rolnick, now senior fellow at the University of Minnesota’s Humphrey School of Public Affairs.

The economics prize capped this year’s Nobel announcements. The awards will be handed Dec. 10, the anniversary of prize founder Alfred Nobel’s death.

The economics prize is not among the original awards established in Nobel’s 1895 will but was created in 1968 by the Swedish central bank in his memory.

Asked how he would invest his half of $1.5 million award, given the turbulence of today’s financial markets, Sims said: “First thing I’m going to do is keep it in cash for a while and think.”

Wiseman reported from Washington. Associated Press writers Karl Ritter, Louise Nordstrom and Malin Rising in Stockholm and Ula Ilnytzky in New York contributed to this report.