Press Release Announcing the Second Ross Prize

Foundation for the Advancement of Research in Financial Economics Awards Second $100,000 Academic Prize

Economics Scholars Nobuhiro Kiyotaki and John Moore Recognized

December 10, 2010.

Stanford, CA --- The Foundation for the Advancement of Research in Financial Economics (FARFE), a consortium of finance academics and practitioners from around the world, has awarded its second Stephen A. Ross Prize in Financial Economics to the paper “Credit Cycles” by Nobuhiro Kiyotaki of Princeton University and John Moore of the University of Edinburgh and London School of Economics and Political Science. The paper was published in the Journal of Political Economy in 1997. The insights of the paper and the literature that followed it have been essential in understanding the recent financial crisis and the “lost decade” in Japan.

The Ross Prize is given biennially to research published in the previous fifteen years. The first prize was awarded in 2008 to Hayne Leland of the University of California at Berkeley for his 1994 paper on corporate debt pricing and capital structure. FARFE established the prize three years ago to recognize and encourage significant contributions to research in financial economics. 

In the award winning paper, Kiyotaki and Moore show how small shocks to the economy can be amplified by credit conditions and give rise to major fluctuations in the output and prices. If holders of assets such as real estate or complex mortgage securities are bound by collateral constraints, a small decline in the price of these assets will precipitate a spiral of declining prices by forcing the holders to sell assets to meet their collateral constraints, further forcing down prices and leading to a further tightening of the collateral constraint, and to a reduction in investment and output. This also implies that credit conditions are a major source of risk for asset pricing in the economy, and it explains the empirical evidence that stocks that are exposed to systematic liquidity risk earn higher rates of return to compensate. This landmark paper has opened up an entire research agenda on the amplification role of asset values and brings important insights to the policy debate on fair value accounting for financial institutions which alters the nature of the collateral constraint that they face.

Jean Tirole, Professor and Chairman of the Board of Directors at the Toulouse School of Economics, said “The recognition of Nobu Kiyotaki’s and John Moore’s seminal “Credit Cycle” paper by the prestigious Ross prize in financial economics is music to the ears of the many economists, including myself, who view it as an important building block of the new literature on macroeconomics with imperfect capital markets. This landmark paper opened up an entire research agenda on the amplification role of asset values and brought insights to the economics contribution to the policy debate on fair value accounting.”

The prize winners, Nobuhiro Kiyotaki and John Moore, said. “We are surprised and honored to receive the Ross prize. We would like to continue our investigation into the interaction between finance and aggregate economic activity in the tradition of Professor Ross.”
The paper was selected from more than 100 papers published in the last 15 years that were considered by the prize committee. “The Kiyotaki and Moore paper received the award both because of its radical new insights for asset pricing that are only now beginning to be absorbed and because of its relevance for recent events in the capital markets” said Michael Brennan, the chair of the prize committee, and Emeritus Professor Finance at The Anderson School of Management at UCLA.

In addition to Michael Brennan, the prize committee included: Patrick Bolton from Columbia University; Markus Brunnermeier from Princeton University; Francesca Cornelli from London Business School; Itay Goldstein from the University of Pennsylvania; Martin Lettau from the University of California at Berkeley; and Paul Pfleiderer from Stanford University.

Founded in 2006 by finance academics and practitioners, FARFE is committed to supporting research in financial economics and to facilitating productive interaction between research and practice in finance. For more details about FARFE, the Ross Prize, and the award-winning paper, see


Kiyotaki and Moore's Paper

Citation for Second Ross Prize

Past Winners

2008 Prize: To "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," by Hayne Leland.

The Stephen A. Ross Prize in Financial Economics

The initiative to establish FARFE came from academics and practitioners who were former students of Stephen A. Ross. To encourage research that exemplifies his focus on fundamental research, and to celebrate the influence he has had on financial economics and on the lives of his students, FARFE has established the Stephen A. Ross Prize in Financial Economics. This biennial award of $100,000 honors a paper in financial economics selected from all papers published over the prior 15 years in any finance or economics outlet. The winning paper must either develop or test a theory in financial economics. The inaugural prize was awarded in 2008 to Hayne Leland for his 1994 Journal of Finance paper "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure."   About Stephen A. Ross
History of the Stephen A. Ross Prize