The economics Nobel goes to Robert Hall and Michael Woodford, whose models taught central banks to steer with expectations

Robert E. Hall of Stanford University and Michael Woodford of Columbia University won the 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The Royal Swedish Academy of Sciences announced the award in Stockholm on Monday, October 12, citing the two Americans "for microeconomic foundations of macroeconomic stabilisation." They will share the 12 million Swedish kronor prize, about $1.2 million, equally. It is the last of this year's Nobel announcements.

Put simply, the prize recognizes the economic models that central banks and finance ministries now use when a recession, an inflation spike or an energy shock hits. The Academy's announcement says those models are built from how real households and businesses make decisions, not only from historical patterns in the data. A central feature is that people and companies look ahead, which gives policymakers a way to steer the economy by explaining what they plan to do.

Who are Robert Hall and Michael Woodford?

Hall was born in 1943 in Palo Alto, California, and earned his PhD at the Massachusetts Institute of Technology in 1967. He is a professor at Stanford and a senior fellow at the Hoover Institution, according to Ynet News. Many Americans have seen his work without knowing it. For more than three decades he chaired the National Bureau of Economic Research's Business Cycle Dating Committee, which decides when U.S. recessions officially begin and end, the NBER said. He was also the founding director of the NBER's Economic Fluctuations and Growth program.

Woodford was born in 1955 in Chicopee, Massachusetts, and also earned his PhD at MIT, in 1983. He is a professor of political economy at Columbia. His 2003 book, Interest and Prices: Foundations of a Theory of Monetary Policy, is widely treated as a core text of modern central banking. He has served as co-editor of the NBER Macroeconomics Annual. Reached by phone in New York, Woodford said the award was a great honor and a surprise, the Associated Press reported.

What problem did their work solve?

Stabilization policy means cutting interest rates and running larger budget deficits in a downturn, then doing the opposite in a boom. The idea goes back to John Maynard Keynes. The Academy notes it ran into trouble in the 1970s. During the oil crises, the Keynesian models of the time did not bring unemployment down and instead helped produce runaway inflation. Those models rested on simple statistical tradeoffs, such as more inflation buying less unemployment, and the tradeoffs broke down once people began to expect higher prices.

Committee member Timo Boppart summed up the old approach this way, according to the AP: "This is the Keynesian recipe and it worked well – until it didn't."

Hall and Woodford helped rebuild the case for stabilization on firmer ground. Instead of assuming fixed relationships between inflation, output and spending, their models start with the choices of individual households and firms and add them up into economy-wide results. That is what "microeconomic foundations" means in the citation. Committee chair John Hassler said the work "provided us with a stable theoretical foundation" for the models central banks and governments use around the world, as quoted by Ynet News.

What did each laureate contribute?

The Boston Globe described the split roughly this way: Hall focused on the demand side, meaning how consumers decide to spend, and Woodford on the supply side, meaning how companies set prices.

Economic historian Beatrice Cherrier traced several landmarks in a post published the day of the award. In a 1978 paper, Hall showed that if households base spending on their expected lifetime income, changes in their consumption should be essentially unpredictable, and he tested that idea against the data. Later work with Frederic Mishkin estimated that about 80% of households behaved that way, while roughly 20% simply spent what they earned each period. That distinction still shapes how economists judge whether stimulus checks or tax cuts will actually be spent. Hall also wrote on firms' market power, taxation and productivity measurement.

Woodford's work, much of it collected in Interest and Prices, built the theory of how a central bank can manage inflation and output mainly by setting and signaling the path of short-term interest rates. Cherrier notes that the book argued for a flexible form of inflation targeting and helped lay the groundwork for what central banks now call forward guidance. Earlier research with Julio Rotemberg used changes in military spending to study how firms' price markups respond to demand, and examined monetary policy rules.

How does this show up in real policy?

The clearest example came after the 2008 financial crisis. Central banks cut interest rates to near zero quickly, but that was not enough on its own. One of the tools they added was forward guidance, publicly signaling how long rates were likely to stay low. Woodford told reporters that forward guidance was an important part of the policy response from 2009 onward, the Boston Globe reported. The approach works because, in these models, households and businesses decide today based partly on what they expect rates and prices to be later.

The Academy said models built on the laureates' foundations have helped policymakers time fiscal and monetary measures through recent downturns, including energy crises and sudden shifts in household spending. Hassler said that, as a result, "we are better equipped to deal with shocks in the economy," according to the Globe.

Why the prize matters for businesses and borrowers

For business owners, this research is the reason central bank communication moves markets as much as rate decisions themselves. When the Federal Reserve or another central bank signals a likely path for rates, lenders, bond markets and businesses start adjusting right away, well before any formal change. Loan pricing, mortgage rates and hiring plans can all shift on a press conference.

• Read the guidance, not just the decision. Under the framework Woodford helped build, statements about future policy are designed to influence borrowing costs now.
• Expect spending responses to vary. Hall's work implies that stimulus lands differently depending on whether households plan around long-run income or spend what comes in.
• Know who calls recessions. The official U.S. start and end dates of recessions come from the NBER committee Hall chaired, usually well after the fact.

What to watch next

The laureates will receive the prize at the December 10 ceremony in Stockholm, alongside the other Nobel Prizes. The economics award is not one of the five original prizes named in Alfred Nobel's will. Sweden's central bank established it in 1968, and it was first awarded in 1969. Last year's prize went to Joel Mokyr, Philippe Aghion and Peter Howitt for work on innovation-driven growth, Reuters noted. This year's choice turns the focus from long-run growth back to the short-run question of how to smooth the swings between booms and busts. With many central banks once again balancing inflation against slowing growth, the tools these two economists helped create are likely to stay at the center of that debate.