Economics Nobel 2026 winners: Who are Robert E Hall and Michael Woodford, and why their research is significant | An explainer

This year’s laureates in economic sciences, Robert E. Hall and Michael Woodford, have developed new macroeconomic models that have significantly improved our ability to implement effective stabilisation policy. On the basis of these models, well-timed fiscal and monetary policy measures can reduce the economy’s peaks and troughs.

Economists Robert E. Hall and Michael Woodford won the Economics Nobel, known formally as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the prize committee announced on October 12.

According to the Nobel committee citation, they won the prize "for microeconomic foundations of macroeconomic stabilisation."


Hall is a professor of economics at Stanford University. Woodford currently teaches at Columbia University. Hall was born in 1943 in Palo Alto, CA, and Woodford was born in 1955 in Chicopee, MA.

How Hall and Woodford reshaped economic policy with New Keynesian models

Economic downturns and inflationary surges may be unavoidable, but better economic models can help governments and central banks limit their damage. Research by Hall and Woodford transformed stabilisation policy by showing how economic decisions made by households and businesses can provide a more reliable foundation for managing growth and inflation.

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Their work laid the groundwork for New Keynesian macroeconomic models, now widely used by central banks and finance ministries to assess policy choices and respond to economic shocks.

Why traditional models fell short

John Maynard Keynes established the principle that governments and central banks can stabilise economic cycles by stimulating demand when it is weak and restraining it when the economy overheats. Traditional Keynesian models attempted to guide these interventions using statistical relationships between inflation, unemployment, consumption and production.

However, the oil crises of the 1970s showed the limitations of this approach. Inflation rose even as unemployment increased, undermining established assumptions about the relationship between the two. Consumption patterns also proved less predictable than expected, while poorly timed stimulus contributed to prolonged periods of weak growth and high inflation.

Economist Robert E. Lucas Jr., the 1995 laureate in economic sciences, argued that such models needed stronger microeconomic foundations. Instead of relying on historical correlations, they had to account for the decisions of individual households and businesses that collectively determine economic outcomes.

Hall's breakthrough on consumption

Hall addressed a central challenge: how to understand household consumption when decisions depend not only on current income but also on expectations of future earnings.

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He proposed that consumption itself could reveal these expectations. Optimistic households would spend more, while pessimistic ones would consume less. If the theory held, changes in consumption could not be predicted because they would depend on new information, which is inherently unpredictable.

Hall's 1978 research supported this hypothesis and established a benchmark for studying consumption. Predictable changes, therefore, could indicate that some households did not fit the model's assumptions, including those unable to borrow or lacking savings.

In a 1982 study with Fredric Mishkin, Hall used household-level data to show that around 80% of households made consumption decisions consistent with the theory, while the remainder lived hand-to-mouth. Although the proportions vary across countries and over time, this distinction became an important component of modern macroeconomic models.

Woodford's model changes policymaking

In his 2003 book, Michael Woodford presented a comprehensive New Keynesian model built on microfoundations, drawing on earlier research by himself and other economists. Its three equations became a template for subsequent models, enabling policymakers to assess how interest-rate changes could influence GDP and inflation.

The framework incorporates Hall's finding that consumption depends on expectations of future income. It also draws on Knut Wicksell's concept of the natural interest rate, showing how central banks can influence economic activity by adjusting policy rates rather than relying on changes in money supply.

The model explains inflation through businesses' pricing decisions and demand pressures. Since changing prices frequently can be costly, companies may keep prices unchanged even when demand or production costs shift. Inflation consequently depends on firms' expectations as well as the output gap — the difference between actual output and the level possible when prices adjust freely and demand aligns with supply.

Supply shocks, such as sharp energy-price increases or international supply-chain disruptions, can reduce the economy's productive capacity and push inflation higher. In such circumstances, raising interest rates may be necessary even when output is falling.

The framework also highlights why central-bank credibility and transparent communication matter: businesses' pricing decisions depend partly on expectations about future interest rates.


(Article based on info from Nobel Committee).