Edmund Strother Phelps, born in 1933, is an American economist and an advocate of New Keynesian Economics. He is a Professor at Columbia University, where he imparts Political Economy. In 2006 Phelps won the Nobel Prize in Economics Sciences, due to his analysis of inter-temporal tradeoffs in macroeconomics, along with their effect on economic policy in the short and long run.
In his paper “Money-Wage Dynamics and Labor Market Equilibrium”, 1968, Phelps established a link between employment, wage setting and inflation, and defended the importance of expectations and imperfect information, in the setting of prices and wages.
In 1969, Phelps wrote “The New Microeconomics in Inflation and Employment Theory”, in which he explained how money surprises could have real effects in the absence of nominal rigidities, using as an example markets physically separated; this metaphor is nowadays known as Phelps’ island parable. Robert Lucas would later on use this paper to introduce rational expectations, which would change the outcome of this study.
He is attributed the term “Golden Rule” of accumulation, which Phelps put forward in his paper “The Golden Rule of Accumulation: a Fable for Growthmen”, 1961, at which savings are such that they optimize the growth of consumption.