The 2026 Nobel Prize in Economics was awarded on Monday to Americans Michael Woodford and Robert Hall. The Nobel committee is honouring two researchers who “developed new macroeconomic models that have improved our ability to implement effective stabilisation policies”. Behind the phrase lies a very concrete question for businesses, employees and households: how can a central bank or a finance ministry smooth out the ups and downs of the economy without fuelling inflation or prolonging a recession?
A problem born of the oil crises
The jury recalls the starting point. As early as the 1970s, the oil crises revealed the instability of the links between inflation, unemployment, income and consumption. The relationships on which stabilisation policies rested no longer held, rendering those policies ineffective. According to the committee, the work of the two laureates “brought about a paradigm shift in stabilisation policy”.
Hall: consumption follows expectations
Robert Hall, now 83, put forward an idea in 1978 that was simple to state but far-reaching in its consequences. If households base their consumption on their expectations of future income, then any change in that consumption depends on new information and therefore cannot be predicted. “By understanding the effect of expectations on consumption decisions, Hall had solved a problem that had long puzzled researchers,” the jury points out.
In practical terms, a household does not react only to its monthly salary, but to its idea of its future income. For an authority seeking to support or curb demand, what matters is therefore not only the measure taken, but also the way it changes those expectations.
Woodford: a complete New Keynesian framework
Michael Woodford, born in 1955, presented a complete New Keynesian macroeconomic model in 2003. The New Keynesian models stemming from their work “allow us to explain and quantify how stabilisation policy influences business cycles and are now used by central banks and finance ministries around the world”, the committee notes. Interviewed live during the announcement, Michael Woodford said he was “delighted”: “It is an immense honour. It is a surprise, but it really pleases me.”
What this changes for central banks
In its announcement, the committee does not detail the specific applications of this work. Its common thread, the role of expectations, nevertheless sheds light on a visible shift in the conduct of monetary policy: if the decisions of households and businesses depend on what they expect tomorrow, the guidance a central bank gives on its future rates and the way it explains it carry almost as much weight as the decision of the day. The jury sums up what is at stake: stimulating or slowing the economy at the right time can prevent prolonged recessions or runaway inflation, because “well-timed fiscal and monetary measures can dampen the ups and downs of economic activity”.
A Swiss reading
The Nobel committee does not mention the Swiss National Bank (SNB); it refers generally to central banks around the world. The logic highlighted by the laureates can nevertheless be found in the Swiss debate: like their counterparts, central banks, including in Switzerland, attach great importance to their communication and to the expectations of households and businesses.
For those who follow these announcements, one distinction remains useful: an economic forecast is neither a finding nor a commitment. It is a scenario, which evolves with its assumptions.
These models remain simplifications. The experience of the 1970s, recalled by the jury, shows that economic relationships considered stable can give way overnight; that is precisely what motivated this research. Their contribution is therefore measured less by the accuracy of a forecast than by the ability they provide to analyse the effect of a decision and to explain it.
A list of laureates still largely male
The last prize of the season, the Economics Nobel closes the 2026 edition in Stockholm. Officially the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”, it was created in 1968 and awarded for the first time the following year. According to AFP, of 99 laureates, only three are women, all honoured since the beginning of the twenty-first century. After innovation and growth in 2025, with Joel Mokyr, Philippe Aghion and Peter Howitt, the committee returns this year to the business cycle and its stabilisation. The prize, which comes with a diploma and a cheque for 12 million Swedish kronor, or just over one million euros, will be presented on 10 December.
