This year's Nobel Prize in Economic Sciences was awarded to Robert E. Hall and Michael Woodford for their work on the microeconomic foundations of business cycles.

Hall is the Robert and Carole McNeil Joint Hoover Senior Fellow and Professor of Economics at Stanford University. He served as AEA President in 2010 and Vice President in 2005, was named an AEA Distinguished Fellow in 2011, and delivered the AEA Distinguished Lecture in 2001.

Woodford is the John Bates Clark Professor of Political Economy at Columbia University. He served on the AEA Executive Committee from 2011 to 2013 and received the AEJ: Macroeconomics Best Paper Award in 2012.

Robert E. Hall

Michael Woodford

In its announcement on Monday, the Academy credited the two economists “for microeconomic foundations of macroeconomic stabilisation.” The laureates laid the groundwork for New Keynesian models of the macroeconomy. These models, now used by central banks and finance ministries around the world, have helped policymakers judge when and how much to stimulate or cool the economy.

Hall helped economists realize the importance of forward-looking households for economic modeling. He argued that if household consumption is governed by expectations of the future, then it should not be possible to forecast changes in consumption. In subsequent empirical work, this hypothesis was confirmed for most households, making the share of forward-looking consumers a crucial element of macroeconomic modeling. 

Woodford built a unified model that put these ideas to work for policymakers. His work explained the role of current and future interest rates in the economy and highlighted why clear, credible communication matters for controlling inflation. His model has helped monetary authorities respond to recent supply shocks more effectively than they did during the oil crises of the 1970s.

“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,” says John Hassler, Chair of the Committee for the Prize in Economic Sciences.

Read the full announcement from the Royal Swedish Academy of Sciences.