Robert Hall of Stanford University and Michael Woodford of Columbia University have been awarded the 2026 Nobel economics prize by the Royal Swedish Academy of Sciences. The prize, worth a combined $1.2m, recognises their work developing the microeconomic foundations of macroeconomic stabilisation. The academy said their research had generated a paradigm shift in stabilisation policy.
The pair created New Keynesian models that allow policymakers to understand and measure how stabilisation policy affects business cycles. These models are now used by central banks and finance ministries worldwide. They improved on John Maynard Keynes's original models, which failed to handle the 1970s oil shock, when countries experienced high inflation, weak growth and high unemployment simultaneously.
Hall focused on how forward-looking consumer behaviour shapes economies, while Woodford built on this work to create a full macroeconomic stabilisation framework. Their models were used after the 2008 financial crisis to steer the global economy away from severe recession. Their work also led to forward guidance, where central banks communicate future interest rate expectations, a tool that became particularly important after 2008 and the Covid pandemic.
Woodford said he was elated by the award. John Hassler, chair of the economics prize committee, said the laureates' work had provided a stable theoretical foundation for models now used globally to handle economic shocks.