Models for a stable economy: Nobel Prize in Economics goes to two US researchers

Two US economists examine how governments and central banks can limit economic fluctuations. For this they receive the award worth over one million euros.

This year's Nobel Prize in Economic Sciences goes to the two US researchers Robert Hall and Michael Woodford. The Royal Swedish Academy of Sciences awarded them the honor for developing new macroeconomic models that today enable central banks and finance ministries to implement better stabilization policies. “The award winners have helped cushion economic ups and downs.” The 83-year-old Hall comes from Stanford University, the 70-year-old Woodford teaches at Columbia University in New York. Woodford called the award a tremendous honor. "It's a big surprise, but it feels very good," said the researcher, who spoke by telephone when the announcement was made.

The academy praised the two researchers' "microeconomic foundations of macroeconomic stabilization." "With them, we are better equipped to deal with economic shocks such as energy crises or sudden changes in household consumption patterns," said John Hassler, chairman of the prize committee. Instead of building economic models on statistical relationships between macroeconomic variables such as inflation, production and consumption, Hall and Woodford opted for a microeconomic foundation. “This includes understanding how the entirety of individual households and companies influence the economy through their actions,” says the academy.

The award goes to research that successfully combines theory and economic policy practice, explained the President of the Ifo Institute, Clemens Fuest. “Economic fluctuations, unemployment and inflation can only be understood if one takes into account how households and companies make decisions and how they react to economic policy measures,” said the Munich economist. "Hall has shaped our understanding of consumption, labor markets and the economy." Woodford has shown what a central role expectations and the credibility of central banks play in the effect of monetary policy. "His research explains in particular why it is not only current interest rate decisions that count, but also expectations about the future course of monetary policy." In the current environment of rising inflation and more attacks on the independence of central banks, research is important.

Unlike the oil price shocks of the 1970s, when central banks struggled to combat extremely high inflation, the new analytical framework proved useful during the global financial crisis of the late 2000s to complement traditional monetary policy tools, according to Woodford. “Making clearer statements about the likely future course of interest rate policy, rather than just relying on being able to cut interest rates further immediately – that was an important part of the policy response in the years from 2009 onwards,” emphasized Woodford.

Kiel Institute President Moritz Schularick said Woodford had shown "that for central banks, what they say about the future is just as important as what they do today." That's why "every word is weighed down" at the European Central Bank's press conferences.

The prize in economics is traditionally announced on the Monday after the other Nobel Prizes. It is the only prize that does not go back to the will of the Swedish industrialist and dynamite inventor Alfred Nobel. The economics prize was subsequently established in 1968 and awarded for the first time in 1969. That's why the Nobel Foundation doesn't officially call it the Nobel Prize, but rather the Swedish Riksbank Prize for Economic Sciences in memory of Alfred Nobel. Like the other awards, it will be awarded on December 10th, the anniversary of Nobel's death - in the Swedish capital Stockholm.

Last week, Nobel Prize winners were announced in the categories of Medicine, Physics, Chemistry, Literature and Peace. This time, two German researchers, Peter Hegemann and Georg Nagel, are among the three medicine prize winners. This year's famous award for literature went to the Canadian poet, translator and essayist Anne Carson. Top South African lawyer Navanethem Pillay received the Nobel Peace Prize for her work against genocide and for human rights.

In 2025, half of the prestigious Nobel Prize in Economic Sciences went to the Israeli-American economic historian Joel Mokyr, the other half to the Frenchman Philippe Aghion and the Canadian Peter Howitt. They were recognized for their research on the steady growth of economies.

This year, like the other awards, the prize is endowed with twelve million Swedish crowns - that's just over one million euros.