Many Pakistani economists had tipped Susan Athey, celebrated for her groundbreaking work on internet search auctions and digital marketplaces, for this year’s Nobel Prize in Economics. However, the winners, American economists, Michael Woodford and Robert Hall, also command a devoted following among their Pakistani peers.
Globally the award has been widely hailed as well-deserved, with both laureates’ influential work shaping not only academic discourse and university curricula but also public policy worldwide. More significantly, their pioneering work has influenced monetary and fiscal policies in Pakistan and elsewhere, often without explicit recognition. While Robert Hall explored consumption and demand dynamics, Michael Woodford examined the supply side and firm’s price-setting behaviour, integrating these insights into a broader macroeconomic framework.
The 2026 Nobel laureates are associated with New Keynesian economics, which advocates policy intervention to stabilise economies and cushion demand-supply shocks, in contrast to Chicago school’s faith in free market and limited government intervention, which it argues often hurts more than helps the economy.
The duo’s work has profoundly informed modern understanding of economic stabilisation, productivity, business cycles and monetary policy role in sustaining growth and stability. Robert Hall also coined the idea that US economists can be divided into ‘freshwater’ and ‘saltwater’ categories. The former, concentrated at inland universities such as the University of Chicago, favours free markets, rational expectations and monetarism. The latter, based largely on coastal institutions, including Harvard, MIT, Berkeley, Yale, Princeton, UCLA and Columbia, lean towards Keynesian economics, advocating fiscal and monetary interventions to stabilise demand and cushion economic stress.
Formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the award was instituted in 1968 and is conferred by the Royal Swedish Academy of Sciences in Stockholm. It carries a cash prize of 12m Swedish kronor (around $1.2m), shared by winners. Esther Duflo remains its youngest laureate, winning in 2019 at 46, while Leonid Hurwicz was the oldest, recognised in 2007 at the age of 90.
Prominent economist and academic Dr Aliya Hashmi Khan praises Hall and Woodford’s work for its relevance for Pakistan, noting that she has made their writings compulsory readings in her courses. She argues that Pakistan’s stabilisation measures are not being assessed against the broader economic outcomes their research emphasises.
“Does keeping policy rates high effectively curb inflation and improve living standards, or merely discourage investment? Similarly, fiscal consolidation through development spending cuts can undermine education and health outcomes. That is not meaningful stabilisation,” she says, citing Pakistan’s experience under successive IMF programmes.
Dr Ishrat Husain, former governor State Bank of Pakistan, says Keynesian economics developed macroeconomic models linking key variables such as GDP growth, unemployment and inflation, but largely overlooked how expectations and decisions of households and businesses shape these outcomes.
“Robert Hall helped bridge this gap by developing models explaining how these economic agents adjust consumption and savings, and firms make investment decisions in response to changing economic conditions. These microeconomic decisions, in turn, influence output, employment and business cycles, providing a bottom-up rather than top-down foundation for macroeconomic stabilisation,” he explains.
“Michael Woodford advanced the concept of forward guidance, demonstrating how central banks can influence inflation expectations not only through interest rate adjustments but also through credible communication of future policy intentions. This helps anchor expectations and has transformed central banking from a traditionally guarded institution into one increasingly committed to transparency and public communication,” he adds.
Dr Rashid Amjad, former chief economist of the Planning Commission, acknowledges limited familiarity with the laureates’ work, given its greater relevance to industrialised economies. However, he argues that the Nobel Committee’s recognition of their work on microeconomic behaviour of firms, households and enterprises, offers important lessons for developing countries, particularly Pakistan.
“Pakistan needs to rethink IMF-prescribed stabilisation policies, which have delivered only temporary relief at enormous social cost, reflected in rising extreme poverty, malnutrition and unemployment,” he says.
He urges the SBP and finance ministry to draw lessons from Hall and Woodford by adopting proactive, credible policies that signal necessary adjustments to the private sector well before crisis erupts, rather than waiting until foreign exchange reserves plunge and bankruptcy looms. The same forward-looking approach, he stresses, is essential to prevent economic overheating.
Dr Ijaz Nabi, country director International Growth Centre, says the laureates’ highly technical macroeconomic models are designed to better manage business cycles in developed economies.
“Their work was particularly relevant in the US before Trump-era disruptions. His tariffs and energy price shocks, aggravated by wars, have fundamentally altered the economic landscape, requiring major policy adjustments to prevent unemployment and stabilise incomes,” he observes.
The writer is a former Dawn staffer
Published in Dawn, The Business and Finance Weekly, October 19th, 2026