Economics Nobel for Robert Hall and Michael Woodford, who rebuilt how central banks steer economies

Two American economists whose work sits inside the computer models of almost every central bank have won the 2026 Nobel Memorial Prize in Economic Sciences. The Royal Swedish Academy of Sciences announced on Monday that Robert Hall, 83, of Stanford University and Michael Woodford, 70, of Columbia University will share the prize “for microeconomic foundations of macroeconomic stabilisation”.

In plainer words: they showed how to build a model of the whole economy from the choices of ordinary households and businesses, and used it to work out how governments and central banks can smooth out booms and slumps.

“It’s a surprise, but I’m feeling very good about it,” Woodford told reporters by phone during the announcement, calling the award “a tremendous honor”.

The problem they set out to fix

For decades after John Maynard Keynes, governments believed they could steady the economy by managing demand. Then the oil shocks of the 1970s brought high inflation and high unemployment together, something the old models said should not happen. Many economists concluded that stabilisation policy simply did not work.

Hall and Woodford helped rescue it. Instead of relying on past statistical links between inflation, jobs and growth, which tend to break down when policy changes, their models start from how people actually decide to spend, save and set prices.

What each of them found

Hall’s key paper came in 1978. He argued that households spend according to what they expect to earn over time, not just what they earn today. If people use all the information they have, he reasoned, changes in their spending should be almost impossible to predict, because only genuinely new information moves them. In 1982, working with Fredric Mishkin on household data, he found that about 80% of families behaved this way. The rest lived hand to mouth, unable to save or borrow much.

Woodford built on that idea. In 2003 he set out a complete “New Keynesian” model linking household spending, business pricing and central bank decisions. Prices in it are sticky: firms cannot change them instantly, so a fall in demand can cut output and jobs. Expectations matter too. If people believe inflation will stay low, it is easier to keep it low, which is why a central bank’s credibility and the way it talks are part of policy.

Why central banks care

The model gave central banks a way to steer the economy through interest rates rather than the money supply, and a reason to say clearly where rates are heading. That practice, known as forward guidance, became vital during the 2008–09 financial crisis, when rates were already near zero.

“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,” said John Hassler, who chairs the prize committee. He said the laureates had given “a stable theoretical foundation for the models that are now used by central banks and governments around the world”.

Woodford pushed back on the idea that this is a mechanical job. “Authorities shouldn’t view stabilization of the economy as an exercise that is simply conducted by people pulling levers,” he said, adding that his theories were not “motivated by a specific political agenda”.

The prize arrives as central banks face another energy shock, this time tied to the war with Iran, with Brent crude above $100 a barrel.

The prize

The award is worth 12 million Swedish kronor, about $1.2 million, split equally. It was set up by Sweden’s central bank in 1969 and was not part of Alfred Nobel’s will. Last year’s winners were Joel Mokyr, Philippe Aghion and Peter Howitt, for their work on growth driven by innovation.