Internationally recognised art and literary critic, writer and cultural producer. Published in ELLE, Glamour, Esquire and Cosmopolitan; member of the Union of Writers.
The Royal Swedish Academy of Sciences announced its decision on 12 October 2026. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2026 goes jointly to Robert E. Hall of Stanford University and Michael Woodford of Columbia University, “for microeconomic foundations of macroeconomic stabilisation”. Each laureate’s prize share is 1/2. The prize amount is 12 million Swedish kronor, to be shared equally between the laureates.
Hall was born in 1943 in Palo Alto, California, and took his PhD at the Massachusetts Institute of Technology in 1967; he is a professor at Stanford University. Woodford was born in 1955 in Chicopee, Massachusetts, and took his PhD at the same institute in 1983; he is a professor at Columbia University in New York.
This is a prize for theory that changed practice: abstract models of how households and firms behave, which ended up inside the working tools of central banks and finance ministries.
The problem the laureates inherited
The Academy begins with a familiar picture: the economy is characterised by alternating downturns and upturns. Ever since John Maynard Keynes launched his theories almost a century ago, stabilisation policy has been important for tackling these fluctuations. During recessions, the economy is boosted by reducing interest rates and increasing the budget deficit, while the opposite should be done to slow a booming economy.
Then came the oil crises of the 1970s, and it seemed that the Keynesian models that govern when and how measures should be implemented no longer worked. They did not reduce unemployment, but led to uncontrolled inflation instead. The West experienced a decade of low growth, high unemployment and high inflation. Many people believed that stabilisation policy had done more harm than good and that it should be retired.
That verdict is the starting point of the 2026 prize. Hall and Woodford are honoured for demonstrating how economic models could be reconstructed to revitalise stabilisation policy.
The answer: start with people, not aggregates
The older models rested on statistical links between macroeconomic variables such as inflation, production and consumption. The Academy’s popular background explains that these relationships had been assumed to be stable, and that during the 1970s they turned out to be much more unstable than researchers and decision-makers had believed. Hall and Woodford chose instead to build on a microeconomic foundation: an understanding of how the total mass of individual households and businesses affect the economy through their actions.
A central component of the new models is that households and businesses are forward looking when making decisions about savings or product prices. From this follows a practical insight. When governments and central banks communicate their plans for economic policy, they can influence this view of the future and move the economy in the right direction. Since the new models’ introduction, the Academy says, they have been extremely helpful in dealing with the economic downturns that have affected us.
Two contributions
The Academy’s popular background describes the two laureates’ roles separately. Hall, it says, started thinking in an entirely new way about how consumption is determined. His central idea was that if households’ consumption is governed by their expectations of future income, then their decisions on consumption are the perfect indicator of those expectations. Changes in consumption therefore should not be predictable, because they depend on new information, and new information cannot be predicted. Hall presented his results in an article in 1978. In a later article, written with Fredric Mishkin in 1982, microdata for individual households showed that around 80 per cent of them made their consumption decisions in line with the theory, while the rest lived hand-to-mouth.
Woodford, in a book from 2003, presented a complete New Keynesian macro model built upon microfoundations. According to the Academy, the model, with its three equations, is the prototype for the New Keynesian models that have followed, and its purpose is to function as a kind of laboratory for policymakers: what happens to GDP and inflation if the interest rate is lowered? The popular background adds that, because businesses look to the future, expectations about future interest rates matter for inflation, so credibility and transparency are important attributes for a central bank. Clear and credible communication has become vital to central banks’ operations.
Why central banks listened
The chair of the Committee for the Prize in Economic Sciences, John Hassler, summarised the achievement in functional terms: the laureates’ work “has provided us with a stable theoretical foundation for the models that are now used by central banks and governments around the world”. With these models, he added, policymakers are “better equipped to deal with shocks in the economy, such as energy crises or sudden changes in how much households consume”.
The Academy’s popular background says the New Keynesian models are now used by finance ministries and central banks around the world, and that the laureates’ research has made it possible to manage major macroeconomic crises far more effectively than before. Recessions and episodes of high inflation have not disappeared, it adds, but they are less long-lasting.
Woodford on the day
In a telephone interview published by the Nobel Prize website, Woodford said he had been woken by the call from Stockholm at about 4.30 in the morning, and that he was due to give his students an exam that day. Asked about the exam, he replied: “They’re probably hoping I’ll cancel the exam.” He said that Hall’s work had been taught in the first year of his own PhD programme, and that he had “known and studied his work very closely for a long time”.
He also spoke about communication, the theme the Academy highlights. His own work, he said, is sensitive to how things are explained to people: the role of public authorities “should be to talk to people”, including about the justifications for what is being done. He named the Swedish economist Knut Wicksell as an influence, and credited the Swedish experience of inflation targeting with shaping his work on stabilisation policy.
What changes, and what does not
Readers sometimes expect an economics prize to deliver a forecast or a recipe. This one honours a way of thinking: well-timed fiscal and monetary policy measures can reduce the economy’s peaks and troughs, as the Academy puts it, and the models give policymakers a way to calculate how. The Academy is also clear that these models are not a final word: as with all paradigm shifts, New Keynesianism was the start of a flourishing line of research, and the models have been developed and refined since the laureates’ works were published.
For a literary and arts readership, the parallel is not forced: both laureates study how beliefs about the future shape conduct in the present. That is also the subject of fiction. The difference is that the readers of these models sit on monetary policy committees.
