Nobel economics prize goes to Robert E Hall, Michael Woodford for work on economic stabilisation
The economists were recognised for developing macroeconomic models that have improved the implementation of fiscal and monetary policies to stabilise economies.
The Royal Swedish Academy of Sciences has awarded the 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Robert E Hall and Michael Woodford for their work on "microeconomic foundations of macroeconomic stabilisation".
The award announcement says the two economists developed macroeconomic models that have significantly improved policymakers' ability to implement effective stabilisation measures.
Based on these models, well-timed fiscal and monetary policy measures can help reduce economic peaks and troughs.
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Economies typically experience alternating periods of downturn and growth. Since economist John Maynard Keynes introduced his theories nearly a century ago, stabilisation policy has played an important role in addressing these fluctuations.
During recessions, governments and central banks can stimulate economic activity by cutting interest rates and increasing budget deficits. Conversely, they can take measures to cool an overheating economy.
However, during the oil crises of the 1970s, the Keynesian models used to determine when and how such measures should be implemented appeared to lose their effectiveness. Instead of reducing unemployment, the policies contributed to uncontrolled inflation. Western economies experienced a decade of low growth, high unemployment, and high inflation. The resulting economic difficulties led many to question whether stabilisation policy was doing more harm than good.
Hall and Woodford were recognised for demonstrating how economic models could be reconstructed to strengthen stabilisation policy. Rather than relying on statistical relationships between macroeconomic variables such as inflation, production and consumption, they built their models on microeconomic foundations.
This approach examines how individual households' and businesses' decisions and actions collectively shape the wider economy.
A central feature of the models is that households and businesses make forward-looking decisions about savings and prices. When governments and central banks communicate their economic policy plans, they can influence expectations about the future and help steer the economy in the desired direction.
The models have since proved valuable in addressing economic downturns, according to the award announcement.
