Edmund Phelps, 73, a professor at Columbia University in New York, will be awarded the prize for his work in the late 1960s showing that changes in wages reflect people’s expectations of inflation as well as the level of unemployment.

The Royal Swedish Academy of Sciences said that his analyses had had “a profound impact on economic theory as well as macroeconomic policy”.

Professor Phelps was woken just after 6am in New York by a call from Sweden to tell him that he had won the SwKr10 million (£728,300) prize. He said: “It feels better and better as it begins to sink in that I have won this wonderful award. It’s great.

“There was a part of me that had been expecting it. I have understood that it could happen — but I had no idea when it could happen and if it would happen.”

It was the first time in seven years that the prize, which is the only Nobel prize not to have been specified in the will of Alfred Nobel, has been awarded to a single winner.

All four of the prizes awarded so far this year have gone to Americans, with the prizes in literature and peace still to be announced.

The economist is best known for his critique of the Phillips curve, which summed up the prevailing view of economists in the 1960s that there was a stable trade-off between inflation and unemployment. Professor Phelps showed that the relationship will break down once wage bargainers start to take into account expected future rises in inflation — a prediction that was realised in the 1970s era of “stagflation” and which the Nobel committee said had received “ overwhelming support” in subsequent experimental research.

He created a revised model to describe the relation between price rises and joblessness, known as the expectations-adjusted Phillips curve.

His findings have had a deep influence in encouraging modern central banks, including the Bank of England, to manage inflation by anchoring inflation expectations to a central target. Philip Shaw, chief economist of Investec Securities, said that his work remained “the cornerstone of central bank practice today”.

Professor Phelps has described how, as a child growing up in Chicago, he showed early signs of his future career path when he made surveys of the distribution, by state, of cars’ number plates. As a graduate student at Yale, he was taught by James Tobin and Thomas Schelling, two economists who went on to win Nobel prizes themselves.

He said yesterday that he had no immediate plans for his prize-money, but would probably invest it. “It may amuse you to know that my wife and I don’t have a lot of hard assets,” he said. “We don’t own a house and we don’t own a car. We have a few clothes here and there. But don’t misunderstand me — we don’t live a very austere life.”

The Nobel prize will be awarded in Stockholm on December 10.

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