The 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel went to two American economists, Robert Hall of Stanford University and Michael Woodford of Columbia University. The Royal Swedish Academy of Sciences announced it on 12 October, citing their work on "microeconomic foundations of macroeconomic stabilisation". The award is worth 12 million Swedish kronor, shared between them.

The question they answered

When an economy is hit by a shock, such as a sudden rise in energy prices or a collapse in demand, governments and central banks try to soften the blow. The hard part is predicting how millions of people and companies will react to a change in interest rates or taxes.

Hall and Woodford built models in which the economy's ups and downs come from those individual decisions: how households choose between spending and saving, and how firms set prices and hire. Policy that ignores those choices, the laureates argued, can backfire.

From theory to practice

Woodford's work became one of the foundations of modern inflation targeting. It emphasises that what a central bank says about its future plans can matter as much as what it does today, because people adjust their behaviour in advance. Forward guidance, in which central banks announce how long rates will stay low or high, is a direct descendant of this thinking.

Hall's research focused on the labour market and on why unemployment can stay high long after a downturn. It shaped how economists measure slack in the economy and judge when stimulus should be withdrawn.

John Hassler, chair of the prize committee, said the laureates' models leave policymakers "better equipped to deal with shocks in the economy".

Why it matters now

The prize comes after several years in which central banks raised rates quickly to fight inflation. Debates about how fast to move, and how clearly to signal it, rely on the tools these two economists helped build. For students of political economy, the award is a reminder that technical models end up shaping decisions that affect jobs and prices for whole countries.

Sources