Two American economists seem to have won this year’s last Nobel-season prize. The Royal Swedish Academy of Sciences announced on Monday, October 12, that it would award 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, according to the Academy’s press release. The Academy cites them “for microeconomic foundations of macroeconomic stabilisation.” DW reports the announcement from Stockholm, and France 24, writing with Reuters, says the award stands as “the final prize to be given out this year.”

In the Academy’s telling, the prize honors models that help governments and central banks time their moves. Its press release says the pair “have developed new macroeconomic models that have significantly improved our ability to implement effective stabilisation policy,” and that on that basis, “well-timed fiscal and monetary policy measures can reduce the economy’s peaks and troughs.” Committee chair John Hassler put it this way in the release: “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. With them, we are better equipped to deal with shocks in the economy, such as energy crises or sudden changes in how much households consume.”

The Academy frames the work as an answer to the 1970s. Its press release says that during the oil crises of that decade, “it seemed that the Keynesian models that govern when and how measures should be implemented no longer worked,” and that “Many people believed that stabilisation policy had done more harm than good and that it should be retired.” According to the Academy’s popular science background, economists such as Robert E. Lucas, Jr., the 1995 economics laureate, argued that such models needed microfoundations, meaning they should build on how individual households and businesses behave rather than on statistical links between macroeconomic variables, as the press release puts it.

Hall’s piece of the puzzle, as the Academy describes it, concerns how households decide what to spend. The popular science background says Hall reasoned that if consumption reflects households’ expectations of future income, then changes in consumption should only follow new information and so should resist prediction. It calls his 1978 article “something of a eureka moment for research.” The Academy adds that a 1982 paper by Hall and Fredric Mishkin, using data on individual households, found that “around 80 per cent of them made their consumption decisions in line with the theory, while the rest lived hand-to-mouth.”

Woodford’s contribution, in the Academy’s account, came together in a 2003 book that presents a complete New Keynesian model built on microfoundations. The popular science background calls its three-equation model “the prototype for all the New Keynesian models that have followed in its footsteps.” It credits Woodford with showing, inspired by the Swedish economist Knut Wicksell, that central banks can steer activity through interest rates rather than the amount of money in circulation, and with introducing the output gap as a measure of demand pressure. Because firms set prices with an eye on the future, the Academy writes, “credibility and transparency are important attributes for a central bank.”

The Academy makes broad claims for the models’ reach. Its popular science background says New Keynesian models now serve finance ministries and central banks around the world, adding: “Quite simply, there are no other viable alternatives.” It says the research helped policymakers during the pandemic and recent energy crises, though it also writes: “Recessions and episodes of high inflation have not disappeared, but they are less long-lasting.” This desk has not seen outside economists’ reactions to the award at the time of writing. DW notes that the Sveriges Riksbank established the economics prize in 1968 as a memorial to Alfred Nobel and that it does not count among the five original prizes in his will, though it gets presented with the others on December 10.