U.S. economist Edmund S. Phelps won the 2006 Nobel Economics Prize on Monday for improving the understanding of the trade-offs between inflation and its effects on unemployment, the Royal Swedish Academy of Sciences announced.

The 73-year-old Columbia University professor's work showed how low inflation today leads to expectations of low inflation in the future, thereby influencing future policy decision making by corporate and government leaders.

His work has "deepened our understanding of the relation between short-run and long-run effects of economic policy" and has had "a decisive impact on economic research as well as policy", the jury said.

"He has emphasized that not only the issue of savings and capital formation but also the balance between inflation and unemployment are fundamentally issues about the distribution of welfare over time," the Nobel committee said.

In his research, Phelps suggested that in setting prices and negotiating wages, employers and workers make judgments about future inflation that in turn influence the inflation outcome.

"As a consequence, the long-run rate of unemployment is not affected by inflation but only determined by the functioning of the labor market," the academy said in its citation.

"Phelps's work has fundamentally altered our views on how the macroeconomy operates," it added.

Phelps will take home the prize sum of 10 million Swedish kronor (1.37 million U.S. dollars).

The Nobel Economics Prize, the fourth of the six prizes to be awarded this year, is the only one not originally included in the last will and testament of the creator of the awards, Swedish inventor Alfred Nobel.

The prize, which is known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was created by the Swedish Central Bank in commemoration of its tricentenary in 1968,and was first awarded in 1969. It is also funded by the bank.

The prizes for Medicine, Physics and Chemistry were awarded last week. The Literature Prize will be announced on Thursday and the Peace Prize on Friday.

The Medicine Prize went to U.S. research duo Andrew Fire and Craig Mello for their discovery of how to silence malfunctioning genes, a breakthrough which could lead to an era of new therapies to reverse crippling disease.

The Physics Prize went to U.S. space scientists John Mather and George Smoot on Tuesday for a pioneering space mission which supports the "Big Bang" theory about the origins of the universe.

Roger Kornberg of the United States won the Chemistry Prize for work on a key process of life called genetic transcription, building on Nobel prizewinning discoveries by his own father.

This year's Nobel prizes will be presented Dec. 10, the anniversary of the death in 1896 of Alfred Nobel. The peace prize is awarded in Oslo, Norway, and the other Nobel prizes are presented in Stockholm.

Editor: Yan