Oct. 11 (Bloomberg) -- Edward C. Prescott and Finn E. Kydland won the Nobel prize for economics for their work on economic policies and business cycles, the Royal Swedish Academy of Sciences said.

Prescott and Kydland won ``for their contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles,'' the academy said in a statement on the Nobel Web site. The academy is responsible for picking the winners of the award, officially called ``The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel.''

Nobel, the Swede who invented dynamite, in his will in 1896 established awards for achievements in physics, chemistry, medicine, peace and literature. The economics prize was set up by Sweden's central bank in 1968 in Nobel's memory. Former winners include Milton Friedman, James Tobin and Franco Modigliani.

This year's winners will share 10 million kronor ($1.5 million). They will receive the award, which also includes a gold medal and a diploma, at a ceremony in Stockholm on Dec. 10, the anniversary of Nobel's death. The same day, the peace prize will be handed over at a ceremony in Oslo.

Last year, U.S. economics professors Robert F. Engle and Clive W. J. Granger won the prize for developing ways to improve economic forecasting and better predict volatility in financial markets, such as the events that led to the stock market crash of 1987.

To contact the reporter on this story: Trygve Meyer in Oslo at tmeyer2@bloomberg.net.

Last Updated: October 11, 2004 07:30 EDT