Their work helped build economic models used by governments and central banks to manage recessions, inflation and other shocks.
American economists Robert E. Hall of Stanford University and Michael Woodford of Columbia University won the 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel on Monday. The Royal Swedish Academy of Sciences recognized their work on the microeconomic foundations of macroeconomic stabilisation.
The researchers developed models that help explain how decisions made by households and businesses shape the wider economy. The Academy said their work gives policymakers a stronger basis for using interest rates, government spending and other measures to soften economic downturns and restrain overheating.
Earlier economic models often relied on broad statistical relationships between inflation, production and consumption. Hall and Woodford helped rebuild those models around the choices people and businesses make, including how they respond to expected changes in prices, income and government policy.
The Academy said this approach helped renew economic stabilisation policy after the oil crises of the 1970s, when high inflation and unemployment challenged existing models. It also helps explain how central banks’ announcements about future interest rates can influence decisions today.
Woodford said the models were useful during the global financial crisis, when central banks had little room to cut interest rates further. He said communicating the likely future direction of rates became an important part of the policy response after 2009.
The work also underpins concepts used in central banking, including “forward guidance,” in which policymakers signal future plans, and the “output gap,” a measure of how far economic activity is above or below its sustainable level. The Academy’s prize committee chair, John Hassler, said the research helps governments and central banks respond to shocks such as energy crises and sudden changes in household spending.
The award is worth 12 million Swedish kronor, to be shared equally. Although commonly called the Nobel Prize in Economics, it is formally a separate prize established by Sweden’s central bank in 1968 and first awarded in 1969.
The economics award was the final Nobel announcement of 2026. Last year’s prize went to Joel Mokyr, Philippe Aghion and Peter Howitt for research on innovation-driven economic growth.
