Economics Nobel 2026: Robert Hall and Michael Woodford win for the models central banks use to fight recessions and inflation

Key takeaways

• The 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel goes to Robert E. Hall (born 1943, Stanford University) and Michael Woodford (born 1955, Columbia University), both from the United States.
• The citation: "for microeconomic foundations of macroeconomic stabilisation."
• Their work built the New Keynesian models that, according to the prize committee, central banks and finance ministries around the world now use to respond to recessions, energy shocks and inflation.
• The prize money of 12 million Swedish kronor is shared equally. The Nobel Prize's official account says 101 people have now won the economics prize across 58 awards since it was set up in 1968.
• Woodford, speaking to the committee by phone from New York, called it "a tremendous honor" and "a surprise", AP reports.

The problem they solved

For decades governments followed John Maynard Keynes: cut interest rates and spend more in a slump, do the opposite in a boom. The models behind that advice relied on fixed statistical links — for example, that unemployment tends to be low when inflation is high.

In the 1970s oil crises those links broke. Inflation rose even as unemployment rose ("stagflation"), and stimulus often came at the wrong time. Many economists argued stabilisation policy had done more harm than good. "This is the Keynesian recipe and it worked well — until it didn't," prize committee member Timo Boppart said, according to AP.

Hall: your spending reveals your expectations

Robert Hall's 1978 insight was simple but powerful. If households spend according to what they expect to earn in the future, then today's spending already reflects their expectations. Spending should only change when genuinely new information arrives — so changes in consumption should be hard to predict.

Tests backed him up. Later work by Hall and Fredric Mishkin, using data on individual households, found that roughly 80% of households behaved this way, while the rest lived "hand-to-mouth". This gave economists a benchmark for how people react to taxes, interest rates and income shocks.

Woodford: the model central banks run

Michael Woodford pulled these ideas into a complete, three-equation model, set out in his 2003 book. Its key ideas:

• Expectations matter. Because businesses and families look ahead, what a central bank says it will do moves the economy, not only what it does. The committee says this is why clear, credible communication has become vital for central banks.
• Sticky prices. Firms do not change prices every time costs or demand shift, so a fall in demand hits output and jobs first.
• The output gap. Woodford's measure of demand pressure tells policymakers whether the economy is running too hot (pushing inflation up) or too cold.
• Supply shocks. When energy prices jump and the economy's capacity shrinks, the model can recommend a cooling step such as raising rates — unlike the traditional Keynesian models.

Why it matters to ordinary people

The Nobel committee says New Keynesian models are now used by finance ministries and central banks worldwide and can be adapted to each country's conditions; Sweden's central bank, for example, runs its own version. When a central bank raises or cuts its policy rate after an oil-price spike, reasoning about expectations, output gaps and credibility from this research is part of the toolkit. The committee credits it with helping economies get through the pandemic and recent energy crises without the long low-growth, high-inflation years of the 1970s — something that matters for loan instalments, jobs and grocery prices in countries like Pakistan and India too.

What to watch

• The laureates' Nobel lectures, which the Nobel Prize website says will be published alongside press conference videos.
• How central banks facing today's oil-price shock — Brent crude is above $100 a barrel — apply the "supply shock" logic the prize celebrates.

This article explains economic research for general readers and is not financial advice.