The 2006 Nobel Prize in Economics (technically, the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) has been awarded to Edmund S. Phelps, Columbia University for his analysis of intertemporal tradeoffs in macroeconomic policy. In other words he won for his work exploring the trade offs between short term and long term effects of macroeconomic policy. The Nobel foundations does an excellent job of providing additional information on the work of prize winners to the pubic:
Phelps’s contributions highlighted the importance of analyzing how future possibilities of reaching the goals of stabilization policy are affected by today’s policy: high inflation today means higher inflation expectations in the future, thereby rendering future policy choices more difficult. A policy of maintaining low inflation can therefore be regarded as an investment in low inflation expectations, enabling more favorable combinations of inflation and unemployment in the future than would otherwise be available.