Robert F. Engle shared the 2003 Nobel Memorial Prize in Economic Sciences for methods of analyzing economic time series with time-varying volatility.
Engle developed the autoregressive conditional heteroskedasticity, or ARCH, model. It allows statistical volatility to change over time, a feature commonly observed in financial returns and other economic data.
Engle shared the prize with Clive Granger, who was recognized for methods of analyzing economic time series with common trends. Their contributions addressed different statistical problems and are often taught together in econometrics.
Volatility means the size of fluctuations, not simply whether prices rise or fall. ARCH-type models became important in financial risk measurement, forecasting, and empirical research.