Former faculty members of Princeton’s Department of Economics Ben Bernanke and Philip Dybvig were awarded the 2022 Nobel Memorial Prize in Economic Sciences on Monday, Oct. 10.
At Princeton, Bernanke taught as a professor of both economics and public affairs, going on to serve as chair of the economics department from 1996 to 2002. Dybvig spent one year at Princeton as an assistant professor of economics in 1980–81.
Bernanke is currently a distinguished senior fellow with the Economic Studies program at the Brookings Institution. He served as the chairman of the Federal Reserve from 2006 to 2014. Dybvig is a professor of banking and finance at the Olin Business School of Washington University in St. Louis.
Bernanke and Dybvig are sharing the prize with Douglas Diamond from the University of Chicago. The trio have been awarded the prize “for [their] research on banks and financial crises,” which have “significantly improved our understanding of the role of banks in the economy, particularly during financial crises,” according to the Prize statement.
The prize amount of 10 million Swedish Kronor, or approximately $886,000, will be split equally between the three winners.
Bernanke and Dybvig are the only two Princeton-affiliated Nobel laureates honored in 2022. They are part of a long legacy of University alumni, professors, and affiliates being awarded Nobel prizes, with five Nobel laureates in 2021 alone, including David Card GS ’83 and Joshua D. Angrist GS ’89 who received the Nobel Prize in Economic Sciences.
“All of us at Princeton know Ben Bernanke to be not only a marvelous scholar but also a generous teacher, beloved colleague, and devoted University citizen,” said University President Christopher L. Eisgruber ’83 in a University press release published on Monday.
“By using his path-breaking research, extensive learning, and practical wisdom to help lead America through a difficult financial crisis, Ben has exemplified brilliantly Princeton’s commitment to be ‘in the nation’s service.’ The Princeton community joins in congratulating him enthusiastically on this extraordinary and well-deserved honor,” Eisgruber said.
In a written statement sent to The Daily Princetonian, department chair and professor of economics at Princeton, Wolfgang Pesendorfer explained that “the contributions of Bernanke and Diamond/Dybvig complement each other; the latter shows that the banking system can be fragile while the [former] shows that bank failures have large economic consequences that go beyond the financial sector.”
The work for which Bernanke is being recognized is formulated in an article from 1983, titled “Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression,” which analyzes the Great Depression of the 1930s. In the paper, Bernanke articulates how bank failures were a cause, rather than a consequence, of economic crises. While on the Federal Reserve Board, Bernanke drew on his work on economic crises to combat the Great Recession of 2008 and 2009.
The award to Dybvig and Diamond also cited a 1983 paper, titled “Bank Runs, Deposit Insurance, and Liquidity,” in which the authors develop a model that, despite its relative simplicity, profoundly captures the central mechanisms of banking.
Pesendorfer noted that Bernanke’s 1983 paper on the Great Depression and his later theoretical work with Mark Gertler, “has been enormously influential, in part because it became so obviously relevant during the financial crisis and the following [G]reat [R]ecession.”
Pesendorfer, the current chair of the Department of Economics, explained that Bernanke “was incredibly successful” while acting as chair of the department. “He expanded the department, he managed to attract many excellent economists to Princeton, and he founded the Bendheim Center for Finance. In addition, he was a great teacher and advisor and incredibly dedicated to the University,” he said.
Bernanke’s ideas and contributions will “feature prominently” in several economics courses such as ECO 315: Topics in Macroeconomics and ECO 342: Money and Banking.
Ilian Mihov GS ’96 was advised by Bernanke at Princeton in the 1990s. Mihov is currently the dean and the Rausing Chaired Professor of Economic and Business Transformation at the Institut Européen d’Administration des Affaires (INSEAD).
“Ben is the smartest person I have ever met,” Mihov said. “I'm a dean now, serving as an administrator, and still to this day, for example, in the most recent debate around inflation and the interest rates, I always look up to what Ben is saying.”
Mihov also highlighted Bernanke’s role in leading the United States out of the financial crisis in 2008.
“I think that it is difficult to imagine a person who was better fitted to be the chairman of the Federal Reserve during the financial crisis in 2008,” Mihov said. “At the time, what we needed was someone who understands monetary policy, and Ben is an expert in that. We needed someone who understands the role of the financial sector, and that was his research which he got the Nobel Prize for.”
“I really think that he saved the world from a catastrophe,” Mihov added. “I would say that in my mind it is difficult to think of another economist with such a big impact both on academia and in practice.”
Bernanke earned his bachelor’s degree in economics from Harvard University and a Ph.D., also in economics, from MIT in 1979. He then joined Stanford University’s Graduate Business School as an assistant professor before coming to Princeton.
Though Bernanke has not returned to the University to teach since 2002, he has been invited as a distinguished speaker on several occasions. He returned to deliver the Baccalaureate address in 2013, and returned the following year when he was honored with the James Madison Award for Distinguished Public Service by the Whig-Cliosophic Society. Bernanke was awarded an honorary doctorate of law degree (J.D.) by the University at Commencement in 2016.
“What sets [Bernanke] apart as an economist is his ability to see through complications of models and identify the core of an idea extremely quickly,” Pesendorfer noted.
Dybvig received his bachelor’s degree in math and physics from Indiana University in 1976. He then went on to earn a M.A. and M.Phil. in 1978, and a Ph.D. in 1979 — all in economics — from Yale University.
Dybvig joined the University as an assistant professor in the department of economics for the 1980–81 academic year before returning to Yale in a tenured professor position. He then left Yale for his current position at Washington University in St. Louis. During the summers, Dybvig runs a research program as Director of the Institute of Financial Studies at Southwest University of Finance and Economics in Chengdu, China.
Bernanke and Dybvig did not respond to requests for comment by the time of publication.
Mahya Fazel-Zarandi is a staff writer for the ‘Prince.’ She can be reached by email at email@example.com or on Twitter @MahyaFazel.
Bhoomika Chowdhary is a staff writer who often covers University affairs/policy and research. She can be reached at firstname.lastname@example.org. She is also a senior copy editor for the Prince.