Robert E. Hall and Michael Woodford won the 2026 Nobel memorial prize in economics for research that helped governments and central banks manage economic shocks.
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Robert E. Hall and Michael Woodford were named the 2026 Nobel memorial prize in economics winners, the Royal Swedish Academy of Sciences announced in Stockholm on Monday.
The Nobel committee said their research honours work that has helped policymakers deal with economic fluctuations and that “has made it possible to manage major macroeconomic crises far more effectively than before.” The committee added that the findings have been “hugely beneficial during the pandemic and the energy crises of recent years.”
The committee said the laureates’ work created a theoretical foundation for models used by central banks and governments to respond to shocks such as energy crises and sudden changes in how much households consume. John Hassler, chair of the Committee for the Prize in Economic Sciences, said the work leaves policymakers “better equipped to deal with shocks in the economy.”
Hall is affiliated with Stanford University in California, while Woodford is affiliated with Columbia University in New York. Woodford spoke to the Nobel committee by phone from New York on Monday, describing it as “a tremendous honor” and “a surprise.”
The Nobel committee said the winners helped overturn earlier assumptions about how economic shocks should be handled. It noted that for decades policymakers followed Depression-era approaches associated with economist John Maynard Keynes, using actions like lowering taxes and increasing government spending to encourage spending and investment.
The committee said those simple trade-offs were later challenged by the stagflation of the 1970s, when the world economy saw high inflation and high unemployment at the same time. It said some economists argued that government intervention would be doomed to fail.
In separate contributions, Hall and Woodford developed improvements to Keynesian-style modelling by accounting for how households and businesses make decisions. The committee wrote that “economic outcomes are the result of millions of decisions made at the microlevel by households and businesses,” and said that using models based on that approach created “a paradigm shift in the theory of stabilization policy.”
The committee said Hall studied how consumer decisions about spending depend on expectations for future income. It noted that if consumers are optimistic they spend more than if they are pessimistic, but that expectations can change unexpectedly as new information about the economy arrives. The committee also said Hall’s work found that households with limited ability to borrow or use savings can respond differently to economic changes.
It said Hall and Fredric Mishkin, in a 1982 paper, found that about 80% of households made spending decisions based on expectations for the future, while “the rest lived hand to mouth.”
For his part, the committee said Woodford analysed how businesses make pricing decisions based on where they expect interest rates to go in the future. It said that if a business expects competitors’ prices and its own costs to rise, it is best to set a higher price than it would under opposite expectations, and that business decisions are also governed by expectations.
The Nobel committee said this led to guidance for central banks such as the U.S. Federal Reserve that set short-term interest rates, recommending “clear and credible communication about how they reason and what they plan to do.” It said central banks responded by working harder to explain what they are doing.
During the phone call broadcast at the Nobel news conference, Woodford said his work has stressed “the understanding of the people who are in the markets and making decisions about spending.”
The economics prize is officially known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. The central bank established it in 1968 as a memorial, and the prize is announced alongside the other Nobel prizes on Dec. 10, the anniversary of Nobel’s death in 1896. The prize money for 2026 is 12 million Swedish kronor, about $1.2 million, with awards for individuals, small groups, or organizations depending on the decision.
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