Robert Hall and Michael Woodford win the Nobel in economics for their key studies to prevent the economy from spiraling out of control

BarcelonaAmerican academics Robert Hall (Palo Alto, 1943) and Michael Woodford (Chicopee, 1955) have won the 2026 Nobel Prize in Economics for their studies on "microeconomic foundations and macroeconomic stabilization", as announced this Monday by the Royal Swedish Academy of Sciences.

According to members of the committee in charge of selecting the award winners, the functioning of the economy is not always "a smooth ride" and predictable. "Sometimes the economy enters a recession, with an increase in unemployment and a fall in interest rates. Inflation can also rise suddenly [...] but sometimes the causes are more difficult to identify", they point out. In this sense, they underline that the work of Hall and Woodford has become very relevant for governments and central banks to "reduce the amplitude of these oscillations" and "limit the risk that the economy becomes trapped in an out-of-control situation".

The studies of the two award winners have their origin in the 70s, when the macroeconomic theories developed by the British economist John Maynard Keynes began to be called into question. Until that moment, economic instability was solved through government intervention: in recession scenarios, activity was stimulated, while in times of excessive prosperity, a slowdown was sought. Thus, high unemployment rates were avoided during periods of lower activity, while in scenarios of strong growth, inflation was kept under control.

With the outbreak of the oil crisis, however, everything went wrong. During that period, high unemployment rates and skyrocketing inflation coexisted simultaneously, forcing a revision of the model. "Many concluded that Keynesian stabilization policies did more harm than good [...], while others [such as Hall and Woodford] maintained that the theories remained relevant, but that their framework needed to be rebuilt," explain sources from the Royal Swedish Academy of Sciences.

"With their contributions, Hall and Woodford have helped to build this new foundation for stabilization policies," the committee remarks. "To understand how stabilization policy affects the economy as a whole, one must begin by describing how individual households decide their consumption and how individual firms make pricing decisions [...], and this framework is used by policymakers around the world," they underscore.

Managing expectations

For Woodford himself –who connected by phone with the Royal Swedish Academy of Sciences shortly after the announcement–, one of the key elements when managing modern macroeconomic scenarios has to do with the control of expectations. When he was asked about the economic event that most tested his model, the academic referred to the 2008 financial crisis.

In this sense, the American highlighted the role played by the strategy of some monetary organizations, among them the European Central Bank (ECB), of announcing their movements in advance. It is what is known in English as forward guidance. The clearest example would possibly be the memorable words of the then president of the ECB, the Italian Mario Draghi, who in an attempt to calm the waters in the eurozone uttered the famous phrase "whatever it takes" (do whatever it takes). The promise that the main monetary organization of the eurozone was willing to do anything contributed, in part, to calming the markets and consumers.

"Introducing forward guidance through more explicit statements about the probable future path of interest rates [...] was an important part of the policy responses during the years following the crisis," Woodford maintained. "It did not magically solve the problem, but it was an important contribution," he commented.

During the same connection, the academic acknowledged that he felt "surprised" by the recognition, although he also said that it was "a great honor" to receive the Nobel. "I am very happy", he summarized.

Financial compensation

The prize awarded this Monday is endowed with 12 million Swedish kronor (a little more than one million euros at the current exchange rate), after the Nobel Foundation increased the amount in 2026. Unlike the other awards, the economics prize was not created by Alfred Nobel. In fact, it began to be awarded 50 years later than the original prizes, at the request of the Bank of Sweden and under the name of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. All of this was done with the consent of the Nobel Foundation.