Nobel honors economists for rethinking economic booms and busts

Two Americans, Robert E. Hall and Michael Woodford, won the 2026 Nobel Memorial Prize in Economic Sciences on Monday for research that has transformed how governments and central banks respond to economic crises.

The Royal Swedish Academy of Sciences notes that the two Americans’ work has enabled policymakers to moderate economic fluctuations and develop better strategies to manage inflation, energy shocks and economic downturns.

When the 1970s energy crisis exposed flaws in John Maynard Keynes’s economic policy ideas, Hall and Woodford shifted their focus to individual decision-making.

They studied how households and businesses decide on spending, saving, and pricing. Their key insight was that macroeconomic outcomes are shaped by the financial decisions of households and businesses, which respond to current economic conditions and their expectations of what lies ahead.

Hall studied how expectations about future income influence consumer spending. His research showed why predicting household spending can be difficult, making economic policy more challenging.

Woodford examined how businesses set prices based on their expectations of future interest rates and costs. His work highlighted the importance of clear communication from central banks, helping people and businesses understand policy decisions.

Hall, 83, is affiliated with Stanford University in California, while Woodford is associated with Columbia University in New York. Both economists described the award as a surprise and a great honor.

The 2008 financial crisis and Covid pandemic tested the laureates’ ideas on forward guidance and central bank credibility.