Robert E. Hall and Michael Woodford won the 2026 Nobel economics prize on Monday for models that help policymakers manage inflation and crises.
American economists Robert E. Hall and Michael Woodford won the Nobel Memorial Prize in Economic Sciences on Monday in Stockholm for creating models that help governments and central banks manage economic shocks, PBS NewsHour reported. The Royal Swedish Academy of Sciences honored the pair for their microeconomic foundations of macroeconomic stabilization, which provided tools to manage disruptions like inflation and energy crises according to CBS News.
Why their research matters
The academy explained that the laureates built a reliable theoretical base for models now used by central banks and governments worldwide, Al Jazeera reported. John Hassler, who chairs the economics prize committee, 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.”
Earlier economic models struggled to account for how everyday decisions by people and firms shape broad financial trends. By looking at decisions from the bottom up, the laureates studied how households and businesses respond to economic shifts. The Nobel committee noted that this approach helped policymakers manage recent crises during the pandemic and energy shortages. Hall is based at Stanford University in California, and Woodford works at Columbia University in New York. Speaking by phone from New York, Woodford said, “It’s a tremendous honor. It’s a surprise.”
Moving beyond Keynesian economics
For decades after the Great Depression, governments addressed downturns using models linked to British economist John Maynard Keynes. That framework encouraged states to intervene during recessions by lowering taxes and raising public spending to spur consumer demand and business investment.
That formula broke down during the oil shocks of the 1970s. Economists previously believed that high inflation and high unemployment would not occur together. When stagflation struck, it disproved those assumptions, prompting some economists to argue that state interventions could not succeed.
Hall and Woodford tackled the problem by looking closely at how people make choices. Hall examined how household spending relies on expectations of future income rather than just current finances. In a 1982 paper written with economist Fredric Mishkin, Hall showed that roughly 80% of households based spending on future expectations, while the remainder lived hand to mouth without savings or credit.
Woodford investigated business pricing, showing that firms set prices by anticipating where interest rates and competitor costs are heading. Because these expectations steer corporate moves, central banks such as the U.S. Federal Reserve must communicate their plans clearly. Central banks have since adjusted their operations to explain their decisions more openly.
History of the award and what comes next
Monday’s announcement is the final Nobel honor revealed this year. Honors in medicine, physics, chemistry, literature and peace were announced last week. Those recipients included South African jurist Navi Pillay for peace, Canadian author Anne Carson for literature, and Stanford’s Dr. Karl Deisseroth, who shared the medicine prize with Peter Hegemann and Georg Nagel.
Formally named the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the award was established in 1968 by Sweden’s central bank and first awarded in 1969. It was not part of the original five prizes created in Alfred Nobel’s 1895 will. Most past winners have come from the United States, and only three women have won it, including Claudia Goldin in 2023. Last year, the prize went to Joel Mokyr, Philippe Aghion and Peter Howitt for work on creative destruction.
The award includes a diploma, a gold medal, and 12 million Swedish kronor, worth about $1.2 million. The laureates will receive the prize at the official ceremony in Stockholm on Dec. 10, the anniversary of Nobel’s death in 1896.
