The Nobel Prize

Lawrence R. Klein (b. 1920)

Lawrence Klein was born in Omaha, Nebraska, USA in 1920. He obtained a BA from the University of California, Berkeley in 1942 and a PhD from the Massachusetts Institute of Technology in 1944. Klein was a graduate student under Paul Samuelson (the 1970 Nobel Memorial Laureate), and The Keynesian Revolution, his revised doctoral thesis, was subsequently published in 1947 (Klein, 1947b). In 1944, he joined the Cowles Commission at the University of Chicago as a research associate, and subsequently worked in the same capacity at the National Bureau of Economic Research from 1948 to 1950, and the Survey Research Center at the University of Michigan from 1949 to 1954. In 1954, in response to Senator Eugene McCarthy’s anti-communist witch-hunt, Klein left the United States for Great Britain where he joined the staff at the Oxford University Institute of Statistics, first as a senior research officer and then as reader. After four years at the Institute, Klein left Oxford in 1958 and returned to America as professor at the University of Pennsylvania, where he remained until he retired from teaching in 1991. He is currently the Benjamin Franklin Professor of Economics, Emeritus, at the University of Pennsylvania.

Klein’s many offices and honours have included the award of the John Bates Clark Medal of the American Economic Association in 1959, and election to the presidencies of the Econometric Society in 1960 and the American Economic Association in 1977. In 1980, Klein was awarded the Nobel Memorial Prize in Economics ‘for the creation of econometric models and their application to the analysis of economic fluctuations and economic policies’ (Nobel Foundation, 2004).
Klein’s published work covers three main areas, namely economic theory, econometrics and econometric model building. He has made a number of important contributions to economic theory, most notably to the specification and development of Keynesian economics (see, for example, Klein, 1947a; 1947b). His 1947 book The Keynesian Revolution established his international reputation as a leading scholar on Keynesian economics. In writing the book he helped to formalise, clarify and extend the central arguments Keynes had put forward in The General Theory of Employment, Interest and Money and forcefully demonstrated the nature of the revolution in economic thought that Keynes had instigated. Klein’s published work in the field of econometrics has largely been concerned with the teaching of the subject through the publication of a series of books (Klein, 1953; 1962; 1983; Klein and Young, 1980). In addition to writing expository textbooks on econometrics and its practical applications, he has also made contributions to the analysis of such problems as the estimation of distributed lags (Klein, 1958) and simultaneous estimation in econometrics (Klein, 1960). However, above all else, he is primarily known for his pioneering work in the field of econometric model building. Over the course of a long and distinguished career he has constructed a series of models which have been used to provide forecasts of key macroeconomic variables, including GNP, consumption, investment, exports and imports, and the effects of alternative policies on these variables.

Klein’s interest in econometric model building began when, in 1944, he joined the Cowles Commission for Research in Economics, at that time located at the University of Chicago. Reinvigorating the early attempts of the Dutch economist Jan Tinbergen (see entry on Tinbergen in this volume) at macroeconometric model building in the 1930s, he began by constructing an interwar model of the United States (Klein, 1950). Next, during his time at the Survey Research Center at the University of Michigan, he designed and constructed, in collaboration with his then-graduate student Arthur Goldberger, a macroeconometric model of the US economy which became popularly known as the Klein–Goldberger model (Klein and Goldberger, 1955). Subsequently, in the mid-1950s while working at the Oxford University Institute of Statistics, he collaborated in building the first econometric model of the United Kingdom (Klein et al., 1961).

The construction of this first series of models was followed by three major research projects while working at the University of Pennsylvania. First, along with James Duesenberry, Klein played a major role in the construction of the Brookings quarterly econometric model of the United States which was used to forecast short-term developments in the US economy (see, 1965 with Duesenberry et al.; Fromm and Klein, 1975). Interested readers should consult his 1976 co-edited book with Edwin Burmeister, Econometric Model Performance, and their comparative simulations of the US economy at that time (see also Klein, 1991a). Second, he initiated and oversaw the development of successive generations of what has come to be known as the Wharton Model (Evans and Klein, 1967). The model was the result of the combined work of Lawrence Klein and Michael Evans, who joined the faculty of the University of Pennsylvania having developed a model of the US economy for his doctoral thesis at Brown University. Klein’s entrepreneurial talent was reflected by the sale of econometric forecasts generated by the model to buyers both in the public and private sectors. The funds raised were then used to support students and further research at the University of Pennsylvania. This income-generating enterprise evolved into Wharton Econometric Forecasting Associates (WEFA), an organisation he founded, and was later sold as a profit-making company (since October 2002 renamed as Global Insight). Klein’s third research project at Pennsylvania was to act as a principal investigator in project LINK. Created in 1968, the project combines national economic models of countries from around the world into a linked model in order to increase understanding of international relationships and improve forecasts of world trade and economic activity.

Although Klein has made important contributions to both economic theory and econometrics, he is best known for his pioneering work in econometric modelling. His efforts in this field have inspired and influenced model building worldwide. For an authoritative discussion of the history of macroeconometric model building, including comparative experience from a number of countries, the reader is referred to Klein’s 1991 book on the subject, co-authored with Ronald Bodkin and Kanta Marwah (1991b).

Main Published Works
(1947a), ‘Theories of Effective Demand and Employment’, Journal of Political Economy, 55,
April, pp. 108–31.

(1947b), The Keynesian Revolution, New York: Macmillan; 2nd edn 1966.

(1950), Economic Fluctuations in the United States: 1921–1941, New York: John Wiley.

(1953), A Textbook of Econometrics, Evanston, IL: Row, Peterson & Co; 2nd edn 1974, Englewood
Cliffs, NJ: Prentice-Hall.

(1955), An Econometric Model of the United States: 1929–1952 (with A.S. Goldberger), New
York: John Wiley.

(1958), ‘The Estimation of Distributed Lags’, Econometrica, 26, October, pp. 553–65.

(1960), ‘Single Equation vs. Equation System Methods of Estimation in Econometrics’,
Econometrica, 28, October, pp. 866–71.

(1961), An Econometric Model of the United Kingdom (with R.J. Ball, A. Hazelwood and P.
Vandome), Oxford: Basil Blackwell.

(1962), An Introduction to Econometrics, Englewood Cliffs, NJ: Prentice-Hall.

(1965), The Brookings Quarterly Econometric Model of the United States (ed. with J. Duesenberry,
G. Fromm and E. Kuh), Chicago: Rand-McNally.

(1967), The Wharton Econometric Forecasting Model (with M.K. Evans), Philadelphia, PA: Wharton School of Finance and Commerce.

(1975), The Brookings Model: Perspective and Recent Developments (ed. with G. Fromm), New York: John Wiley.
(1976), Econometric Model Performance (ed. with E. Burmeister), Philadelphia, PA: University of Pennsylvania Press.

(1980), An Introduction to Econometric Forecasting and Forecasting Models, (with R.M. Young), Lexington, MA: Lexington Books.

(1983), Lectures in Econometrics, Amsterdam: North-Holland.

(1991a), Comparative Performance of US Econometric Models (ed.), New York: Oxford Univer
sity Press.
(1991b), A History of Macroeconometric Model-Building (with R.G. Bodkin and K. Marwah), Aldershot, UK and Brookfield, US: Edward Elgar.
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