Nobel economics prize goes to Hall and Woodford for stabilisation models

Two American economists, Robert Hall and Michael Woodford, have won the 2026 Nobel prize in economics for work that helps central banks and governments keep their economies stable, avoiding long recessions and runaway inflation.

The Royal Swedish Academy of Sciences said the pair had produced "a paradigm shift in stabilisation policy". They share the prize, worth $1.2m (about £900,000).

What they discovered

Hall, of Stanford University in California, and Woodford, of Columbia University in New York, were honoured for developing the "microeconomic foundations of macroeconomic stabilisation", giving policymakers better tools to smooth out the peaks and troughs of the economy.

Their work improved on the models built on the ideas of John Maynard Keynes, which struggled to explain the oil shocks of the 1970s, when countries suffered high inflation, weak growth and high unemployment all at once.

Hall's work was based on how consumers look ahead and plan, rather than on fixed rules of thumb. Woodford built on it to create the New Keynesian model, a full framework that is now the main tool used by central banks. It was used after the 2008 financial crisis as policymakers steered the world away from a second Great Depression.

Forward guidance

Their research also led to forward guidance, in which central banks say where they expect interest rates to go, to shape expectations. It became an important tool after 2008 and during the pandemic, when rates were cut to record lows, although it has its critics. In 2014 the then Bank of England governor, Mark Carney, was called an "unreliable boyfriend" for hinting at rate rises that did not happen.

"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," said John Hassler, who chairs the prize committee. "With them, we are better equipped to deal with shocks in the economy, such as energy crises or sudden changes in how much households consume."

"A tremendous honour"

Woodford said he was "elated". "It's a tremendous honour. It's a surprise but I'm feeling very good about it," he told reporters by phone.

Hall is also known for coining the idea that American economists come in "freshwater" and "saltwater" varieties: free-market thinkers clustered at inland universities such as Chicago, and Keynesians at coastal ones such as Harvard and Columbia.

Why it matters now

The prize comes at a time when central banks are again wrestling with an energy shock, as the war in the Middle East pushes up oil and gas prices. The Bank of England is widely expected to raise interest rates next month, and its decisions draw on the kind of models Hall and Woodford pioneered.

The economics prize was not one of the five created by Alfred Nobel. It was established by Sweden's central bank in 1968, and is formally the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. It is the last of this year's Nobel announcements.