Two American economists who research price stabilisation across global economies have won the Nobel prize for economics.
Robert E. Hall and Michael Woodford were the joint winners of the prestigious award officially called “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”.
Hall and Woodford’s research on forecasting has influenced policymakers when setting interest rates or announcing spending packages.
Woodford is widely credited for laying the foundations on so-called “forward guidance” used by central banks to signal whether interest rates may rise. Hall is also known for creating the ‘fresh-water and salt-water’ divide in economics, contrasting free-market views with those who believe governments and central banks should take a more active role in the economy
The pair, who will claim the award worth £900,000, are considered to be part of the ‘New Keynesian’ tradition, a school of thought that develops ideas built by the British economist John Maynard Keynes.
New Keynesian modelling explains how a string of individual household and business decisions can create wider economic effects, including the slow pass-through of market imperfections into prices and wages. The school of thought revisits ideas by Keynes amid previous assumptions that era of high inflation would lead to lower unemployment.
Nobel prize for ‘shift in stabilisation policy’
Explaining the decision for the award, the Royal Swedish Academy of Sciences in Stockhold said: “Economic development is characterised by alternating downturns and upturns. Stimulating or slowing down the economy at the right time can provide stability and allow us to avoid drawn-out recessions or runaway inflation. Robert E. Hall’s and Michael Woodford’s research has generated a paradigm shift in stabilisation policy.”
“New Keynesian models, a result of their research, allow us to explain and quantify how stabilisation policy affects business cycles and are now used by central banks and finance ministries around the world.”
Last year, Joel Mokyr, Philippe Aghion and Peter Howitt won the Nobel prize for economics for their research on growth by technological progress and “creative destruction”, whereby progress and the development of welfare relies on new innovations replacing older technologies.
The Nobel peace prize this year went to Navi Pillay, an International Criminal Court judge who has written reports on war crimes in the Hamas-Israel war and investigated the Rwandan genocide.