Hall and Woodford Win 2026 Economics Nobel for Stabilisation Models

The Royal Swedish Academy of Sciences awarded the 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Robert E. Hall of Stanford University and Michael Woodford of Columbia University. The citation recognises them “for microeconomic foundations of macroeconomic stabilisation.”

Hall, born in 1943, and Woodford, born in 1955, share the prize of 12 million Swedish kronor. Their work developed models that treat economic outcomes as the result of millions of individual decisions by households and firms rather than as simple statistical relationships between aggregate variables. These New Keynesian models are now used by central banks and finance ministries to decide when and how much to adjust interest rates or fiscal policy.

Hall’s 1978 paper showed that consumers prefer to keep consumption relatively stable over time. That insight shifted attention from current income alone to expectations about future income and interest rates. Woodford later built a full New Keynesian framework that incorporates sticky prices and forward-looking behaviour. In a 2003 book he presented a model that central bankers still reference when they set policy.

The academy noted that the models improve the ability to manage shocks such as energy price spikes or sudden changes in household spending. John Hassler, chair of the prize committee, said the work gives policymakers better tools to reduce the peaks and troughs of the business cycle. The committee pointed to the models’ usefulness during the pandemic and the energy crises that followed.

Woodford, reached by phone in New York, called the award a tremendous honour and a surprise. Hall is the Robert and Carole McNeil Joint Hoover Senior Fellow and Professor of Economics at Stanford. He served as president of the American Economic Association in 2010. Woodford is the John Bates Clark Professor of Political Economy at Columbia and previously served on the AEA executive committee.

The economics prize is not one of the original five awards established by Alfred Nobel’s will. Sweden’s central bank created it in 1968, and it has been awarded annually since 1969. It is the last of the 2026 Nobel prizes to be announced. Earlier this week the literature prize went to Canadian poet Anne Carson and the peace prize to South African jurist Navi Pillay.

Hall and Woodford’s contribution addressed a practical failure of older Keynesian models. Those models struggled to explain the combination of high inflation and high unemployment that followed the oil shocks of the 1970s. By grounding aggregate behaviour in microeconomic decisions about consumption, investment, and price-setting, the new models allowed policy makers to forecast how households and firms would respond to changes in interest rates or government spending.

Central banks now use versions of these models to produce forecasts and to evaluate alternative policy paths. The models incorporate concepts such as sticky inflation, in which prices adjust slowly, and the role of expectations in determining current spending. Forward guidance, the practice of signalling future policy intentions, rests on the same logic.

The prize comes at a moment when many economies are again dealing with energy-related price pressures linked to conflicts in the Middle East and elsewhere. The academy said the laureates’ research has already proved useful in those conditions. Whether the models will continue to perform as well under new combinations of supply shocks and fiscal constraints is a question that central banks will test in the months ahead.

Both economists have spent decades refining the theoretical tools that now sit inside the policy models of the Federal Reserve, the European Central Bank, and many other institutions. The award recognises that body of work rather than a single paper or recent discovery. The formal ceremony will take place in Stockholm on 10 December.