Robert E Hall and Michael Woodford have won the for their work on the microeconomic foundations of macroeconomic stabilisation. Their research has helped improve how governments and central banks respond to economic ups and downs, including recessions, inflation and changes in spending.
The Royal Swedish Academy of Sciences announced the award, formerly known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, for the economists’ work on developing better models to guide economic policy.
Robert E Hall is a professor at Stanford University in California, the United States. Born in 1943 in Palo Alto, he worked on economic research that helps explain how the wider economy functions.
Michael Woodford is a professor at Columbia University in New York, the United States. Born in 1955 in Chicopee, he has contributed to research on how economic decisions and government policies influence the economy.
The two economists were recognised for developing new macroeconomic models that have improved the way policymakers understand economic changes and decide when to act.
Economies go through periods of growth and decline. During a recession, unemployment may rise and incomes may fall. At other times, a rapidly growing economy can face rising inflation.
Earlier economic models struggled to guide policymakers during the oil crises of the 1970s, when many Western economies faced slow growth, high unemployment and high inflation. Measures intended to support the economy did not always deliver the expected results.
Hall and Woodford helped rebuild these models by grounding them in microeconomics, which examines how households and businesses make decisions. Their approach considers how people and companies respond to changes in prices, savings and economic policy.
An important part of their work is the idea that households and businesses consider the future when making decisions. When governments and central banks communicate their plans, they can influence these expectations and help steer the economy.
The models have helped policymakers better time fiscal measures, such as changes in government spending and taxation, and monetary measures, such as changes in interest rates.
“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, Chair of the Committee for the Prize in Economic Sciences.
He added that these models have improved the ability to respond to economic shocks, including energy crises and sudden changes in household consumption.