Finn Kydland (left) and Edward Prescott share the 2004 prize

The Norwegian and American duo received the award in recognition of their work showing how business cycles affect international trade.

They demonstrated that the forces which drive fluctuations in the business cycle are crucial factors to study in economic research.

Kydland and Prescott, who both teach at US universities, will share a 10m kronor($1.3m, �723,000) cash prize.

'Greatest honour'

The Royal Swedish Academy of Sciences, which awards the Nobel economics prize, said the two economists' ideas had made a fundamental contribution to the practice of monetary and fiscal policy in many countries.

Professor Kydland, 60, teaches at Carnegie Mellon University in Pennsylvania while Professor Prescott, 63, teaches at Arizona State University.

"It is fantastic, mainly because this is the greatest honour I can get as an economist," Prof Kydland told Norwegian TV channel NRK.

"What is most important is that other economists have built on my work."

Prof Prescott is the fifth US citizen to win the prize since 2000.

Prof Kydland becomes the third Norwegian recipient of the prize.

The Nobel economics prize was launched in 1968 by the Bank of Sweden in memory of the Swedish industrialist Alfred Nobel.