LONDON (AP) -- A Canadian economist whose innovative analysis of exchange rates helped lay the intellectual groundwork for Europe's common currency won the Nobel Prize for economic sciences Wednesday.
Robert A. Mundell of Columbia University in New York developed theories about monetary economics in the 1960s that were radical at the time.
Yet his idea that more than one country might benefit from use of the same currency inspired creation of the euro that 11 European nations came to share some 35 years later.
``His work on monetary dynamics and optimum currency areas has inspired generations of researchers,'' the Royal Swedish Academy of Sciences said. ``Although dating back several decades, Mundell's contributions remain outstanding and constitute the core of teaching in international macroeconomics.''
The academy applauded Mundell, 67, for clarifying how exchange rates fluctuate when a government changes its monetary policy.
His fellow economists described him as something of a Herculean figure whose academic analyses have valuable, practical applications.
``He's a giant in the field of international monetary economics,'' said Charles Goodhart, an economist at the London School of Economics. ``He absolutely dominated the field and changed it dramatically in the '60s and '70s.''
Speaking from a hotel in London, Mundell said he was somewhat surprised at the award.
``It's extremely important to me,'' he said. ``It's a measure of the respect that colleagues around the world have for me.''
As far back as 1961, Mundell raised what was then a novel question: When would it be advantageous for nations to give up monetary sovereignty in favor of a common currency?
The question of whether the Canadian dollar should have a fixed or flexible exchange rate against the U.S. dollar led him to believe that more than one country could form the optimum area for a single currency.
Such a view must have seemed then like ``an academic curiosity,'' the academy said, because all countries were linked together at that time by fixed exchange rates within the so-called Bretton Woods System.
Mundell's analysis became increasingly relevant during the next decade as controls on international capital movements began to ease and the Bretton Woods System broke down.
``Early on, I came to have the opinion that Europe was going to move toward closer integration, and monetary union would be a good thing for Europe,'' he said.
He went on prepare one of the first plans for a European common currency, and has been an adviser to the United Nations, the International Monetary Fund, the World Bank, the U.S. and Canadian governments and governments in Latin America and Europe.
While working at the International Monetary Fund, he published a trailblazing article in 1963 on the short-term effects of monetary and fiscal policy in an open economy, the academy's citation said.
Mundell showed how exchange rates are affected when a government allows its fiscal policy to adapt to the whims of supply and demand generated by foreign exchange traders, or, alternatively, when it intervenes by manipulating its currency supply.
Together with economist Marcus Fleming of the IMF, Mundell developed an economic model on exchange rate equilibrium that became known as the Mundell-Fleming Model.
Textbooks continue to stress the model's usefulness, said Jean Dermine, a professor of banking at INSEAD, an international business school in Fontainebleau, France.
Mundell's first book, ``Man and Economics,'' was published in the United States in 1968. Since then, he has written or co-written and edited dozens of books, articles and papers.
In addition to laying the intellectual foundation for the euro, Mundell's work remains prescient in other areas as well.
In a paper delivered in 1997, he forecast the recent rebound in the value of gold, long after gold had fallen out of favor as a store of value.
And his work highlighting a government's loss of control when it fixes the value of its currency seemed to anticipate the recent Asian financial crisis, said D. Gale Johnson, an economics professor at the University of Chicago.
Mundell said he would use part of the $960,000 that goes along with the prize to repair a castle he owns in Italy.
The economics prize is the only one not established in the will of Swedish industrialist Alfred Nobel, who invented dynamite. The economics prize was created in 1968 to mark the tricentennial of Sweden's central bank.
Last year's Nobel Prize for economics went to Amartya Sen, a scholar from India who developed a new understanding of the economic mechanisms underlying famines and poverty.
