Robert E. Hall and Michael Woodford have been awarded the Nobel memorial prize in economics for work that underpins models used by central banks and governments to smooth out periods of boom and bust.
The U.S.-born pair were jointly recognized for their contribution to the “microeconomic foundations” needed to create macroeconomic stability, according to the Royal Swedish Academy of Sciences.
Hall, born in California, is a professor at Stanford University, while Massachusetts-born Woodford holds a professorship at Columbia University.
The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was established by Sweden’s central bank in 1968, making it the youngest of the major Nobel categories.
The two winners will split a 12 million Swedish kronor prize, equivalent to approximately $1.2 million, reflecting the award’s standing as one of the most prestigious honors in the field.
John Hassler, chair of the Committee for the Prize in Economic Sciences, praised the significance of their contributions in a statement released Monday alongside the announcement.
“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,” Hassler said.
During the stagflationary oil crises of the 1970s, widely accepted Keynesian models, which prescribed cutting interest rates and increasing government budget deficits to tackle recessions, seemed to “no longer work,” the academy noted.
To revitalize these models, the economists’ separate work looked beyond macroeconomic variables such as inflation, production, and consumption, showing how individual households and businesses collectively shape the economy through decision-making based on expectations for the future.
Their research demonstrated the critical importance of central banks and governments communicating policy plans clearly, which can “influence this view of the future and move the economy in the right direction,” the academy said.
“On the basis of these models, well-timed fiscal and monetary policy measures can reduce the economy’s peaks and troughs,” the academy added in its announcement.
The academy further noted that “since the new models’ introduction, they have been extremely helpful in dealing with the economic downturns that have affected us,” underscoring decades of practical impact.
The economics prize is traditionally the final Nobel award announced each year, following prizes in physiology or medicine, physics, chemistry, literature, and peace.
This year’s broader Nobel cohort includes Navanethem “Navi” Pillay, awarded the Nobel Peace Prize for her work promoting peace and international law, and Canadian poet and writer Anne Carson, who won the literature prize for a “bold and inventive oeuvre.”
