The Royal Swedish Academy of Sciences awards Robert E. Hall and Michael Woodford for developing micro-founded macroeconomic models that have improved stabilization policies in crises such as the pandemic or the energy crisis.
The Royal Swedish Academy of Sciences has awarded the Nobel Prize in Economics to Americans Robert E. Hall and Michael Woodford for developing new micro-founded macroeconomic models that have enabled the implementation of more effective stabilization policies during financial and economic crises such as that caused by the COVID-19 pandemic. The information, reported by infobae.com, highlights that both researchers will share the 12 million Swedish kronor (1.1 million euros) prize.
The decision emphasises that their research has driven a "paradigm shift" in economic policy by incorporating the decisions of individuals and firms into the models used by central banks and governments worldwide. The academy noted that these models have helped better address the coronavirus pandemic and the energy crisis in recent years.
"Recessions and episodes of high inflation have not disappeared, but they are less enduring"
The chairman of the Nobel Committee for Economics, John Hassler, highlighted that with these models "we are better equipped to deal with disturbances in the economy such as energy crises or sudden changes in household consumption."
The academy recalled that traditional Keynesian models were based on the assumed stability of statistical correlations between macroeconomic variables such as inflation, consumption, or unemployment. However, the oil crisis of the 1970s called these models into question, as they did not reduce unemployment and led to uncontrolled inflation.
In 1978, Robert E. Hall published a paper that solved the problems of these models and changed the understanding of private consumption determination. His central idea was that changes in consumption could not be predicted because they depend on new and unpredictable information. In 1982, alongside Fredric Mishkin, Hall showed, by analysing microdata from a series of households, that nearly 80% made decisions according to the theory, while the rest lived from day to day.
Meanwhile, Michael Woodford presented a new Keynesian macro model based on microfoundations in 2003, which became a prototype for later New Keynesian models. This model incorporates Hall's findings on household expectations and explains how central banks can stimulate or suppress economic activity by adjusting interest rates, rather than the amount of money in circulation.
The decision highlights the simplicity of the model, which is nonetheless based on "pioneering" research.
"Its simplicity, combined with how well it fits reality, led to it being quickly accepted by economic policymakers in central banks and finance ministries. The model can also be refined and adapted to the circumstances of each country"
Robert E. Hall (Palo Alto, 1943) is a professor at Stanford University, while Michael Woodford (Chicopee, 1955), awarded last year with the BBVA Foundation Frontiers of Knowledge Award, teaches at Columbia University. They succeed the 2025 laureates: American Joel Mokyr, French Philippe Aghion, and Canadian Peter Howitt.
The Nobel Prize in Economics, officially the Prize in Economic Sciences in Memory of Alfred Nobel, is the only one of the six awards not created by the Swedish magnate, but was established in 1968 from a donation to the Nobel Foundation from the Bank of Sweden on its 300th anniversary.
You may also like
