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American economists Robert Hall and Michael Woodford were awarded the Nobel economics prize on Monday for their work on how monetary and fiscal policy can help stabilise fluctuations in the economy.
"The laureates' work has provided us with a stable theoretical foundation for the models that are now used by central banks and governments around the world," the jury at the Royal Swedish Academy of Sciences said in a statement.
"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 prize committee, said in the statement.
During the oil crises in the 1970s, the existing Keynesian models long used to determine when and how measures should be implemented to tackle recessions or other economic fluctuations no longer worked.
That prompted Hall and Woodford to develop new tools for understanding which policy responses could be the most effective.
"Rather than basing the models on statistical links between macroeconomic variables, such as inflation, production and consumption, they chose to build them on a microeconomic foundation," the academy jury said.
"This encompasses an understanding for how the total mass of individual households and businesses affect the economy through their actions."
The economics prize is the only Nobel not among the original five created in the will of Swedish scientist Alfred Nobel, who died in 1896.
It was created instead through a donation from the Swedish central bank in 1968, leading detractors to dub it "a false Nobel."
But like the Nobels in chemistry and physics, the Royal Swedish Academy of Sciences chooses the winner and follows the same selection process.
Last year, the award went to American-Israeli Joel Mokyr, France's Philippe Aghion and Canada's Peter Howitt for research into how technology drives and affects growth.
Like the other Nobels, the economics prize consists of a diploma, a gold medal and a $1.2 million (€1 million) cheque.
The laureates will receive their prizes at formal ceremonies on 10 December, the anniversary of the death in 1896 of scientist Alfred Nobel, who created the prizes in his will.