Economics Nobel honours tools for managing economic shocks

Models that help governments and central banks manage economic shocks have earned American economists Robert E. Hall and Michael Woodford the 2026 Nobel memorial prize in economics. The Royal Swedish Academy of Sciences announced the award in Stockholm on 12 October. Hall is affiliated with Stanford University and Woodford with Columbia University.

Their work addresses a problem exposed sharply in the 1970s: high inflation and high unemployment could occur together. That experience challenged the idea that policymakers could reliably trade one against the other, and showed the need for a better understanding of how economies behave.

Working separately, Hall and Woodford helped build models grounded in the choices households and businesses make. Rather than relying only on statistical relationships between broad economic measures, their approach examines decisions such as how much to save, spend or invest, and what prices to charge. Crucially, it accounts for how expectations about the future shape those choices.

According to the prize committee, their research provides a theoretical foundation for models now used by governments and central banks around the world. These tools leave policymakers better equipped to respond to disruptions such as energy crises or sudden changes in household spending, helping them choose policies that can soften economic swings.