US academics Robert Hall and Michael Woodford won the 2026 Nobel economics prize on Monday for decades of work developing ground-up models currently used by central banks and finance ministries across the world to stabilise economies.
“With them, we are better equipped to deal with shocks in the economy, such as energy crises or sudden changes in how much households consume,” John Hassler, Chair of the Committee for the Prize in Economic Sciences, said in a statement.
The prestigious award, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, is the final prize to be given out this year and is worth 12 million Swedish crowns ($1.2 million).
One of the laureates’ key insights is that economies could only be kept on an even keel by taking into account the millions of decisions made at a micro-level by households and businesses, rather than by using top-down theories of how economies work.
“...Authorities shouldn’t view stabilisation of the economy as an exercise that is simply conducted by people pulling levers to control the economy independently of what people in the economy understand about this,” Columbia University’s Woodford, 70, told a news conference.
In contrast to the oil shocks of the 1970s, when central banks struggled to combat sky-high inflation, Woodford said the new framework was useful during the global financial crisis of the late-2000s to bolster traditional tools of monetary policy.
“Making more explicit statements about the likely future path of interest rate policy, as opposed to relying on simply being able to cut interest rates further immediately, that was an important part of the policy response in the years from 2009 onward,” he said.
Beyond so-called “forward guidance” on the future path of monetary policy, the work of Woodford and Hall, 83, at Stanford University promoted other concepts used today such as the idea of “sticky” inflation when price changes lag changes in demand.
Another is the “output gap”, a measure of demand pressure building up in an economy and how efficiently resources are being used - the goal of stabilisation policy being to steer that gap towards zero.
I think it began a long time ago when I was in my Bachelors and I joined a theater group.
The economics prize, first awarded in 1969, is not one of the original five awards created in the 1895 will of industrialist and dynamite inventor Alfred Nobel, but was established by Sweden’s central bank.
The majority of previous laureates have been from the United States. Only three women have ever won, most recently Claudia Goldin in 2023 for work on how gender has affected pay and employment over time in the United States.
Analysis by the Institute for Scientific Information, part of Clarivate, had picked researchers working on monetary policy, the economics of information technology and evolutionary economic theory as possible recipients.
Last year’s winners, Joel Mokyr, Philippe Aghion and Peter Howitt, won for work on “creative destruction” and how new technology and production methods can boost growth and living standards.
The Nobel prizes for medicine, physics, chemistry, literature and peace were announced last week.