Nobel economics prize: how Hall and Woodford shaped the way central banks set rates

In short: The 2026 Nobel economics prize went to Robert E. Hall and Michael Woodford for building economic models from how households and businesses plan ahead. The Academy says central banks and governments around the world now use these models to steady the economy.

When a central bank raises or cuts interest rates and explains where it thinks rates are heading, it is relying on a way of modelling the economy that this year's economics laureates helped build.

The Royal Swedish Academy of Sciences awarded the 2026 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Robert E. Hall of Stanford University and Michael Woodford of Columbia University on 12 October, "for microeconomic foundations of macroeconomic stabilisation". The Academy's announcement sets out why.

Economies move through downturns and upturns. Since John Maynard Keynes, governments and central banks have tried to smooth those swings, a job economists call stabilisation policy: cut interest rates or spend more in a recession, do the opposite when an economy runs hot.