Robert E. Hall of Stanford University and Michael Woodford of Columbia University won the Nobel Prize in Economic Sciences on Monday for models showing how monetary and fiscal policy can steady an economy through booms and recessions.
The Royal Swedish Academy of Sciences, which picks the winner, said the two Americans had given policymakers new tools for downturns and other crises that don’t respond to the old remedies. Using their models, the prize jury said, “well-timed fiscal and monetary policy measures can reduce the economy’s peaks and troughs.” It was the last Nobel announced this year, Al Jazeera reported.
“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,” John Hassler, chair of the Committee for the Prize in Economic Sciences, said in the academy’s announcement.
The prize goes back to a breakdown. For decades after John Maynard Keynes laid out his theories almost a century ago, governments used his ideas to prop up growth when it faltered. Then came the oil shocks of the 1970s, and the Keynesian models that told officials when and how to act stopped working, the academy said, as Agence France-Presse reported.
Mr. Hall, 83, and Mr. Woodford, who was born in 1955, went looking for something better, separately. Older models leaned on statistical links among inflation, production and consumption. They built theirs from the bottom, adding up what millions of households and businesses actually decide to do.
Households look ahead when they choose whether to spend or save. That means what a central bank or a government says about its plans can move behavior today, before any policy takes effect.
The committee cited Mr. Hall’s research in the late 1970s on expectations and household consumption, and Mr. Woodford’s 2003 book, Interest and Prices, which set out a full macroeconomic model resting on microeconomic foundations. That work became the basis of the “New Keynesian” approach, NPR reported.
“It’s a surprise, but I’m feeling very good about it,” Mr. Woodford told reporters by phone during the announcement. He said he was “elated” at “a tremendous honor.”
His theories have shaped what policymakers do, but he said they weren’t “motivated by a specific political agenda.” “It was an attempt to improve the foundations for discussion of economic policy and therefore to contribute both to the management of the economy, but also to contribute to public understanding,” he said.
Both men earned their doctorates at the Massachusetts Institute of Technology, Mr. Hall in 1967 and Mr. Woodford in 1983, according to MIT News. Mr. Hall was the founding director of the National Bureau of Economic Research’s program on economic fluctuations and growth and led its Business Cycle Dating Committee, the panel that marks when U.S. recessions begin and end, for more than three decades, the bureau said. Mr. Woodford is the John Bates Clark Professor of Economics at Columbia.
The economics award isn’t one of the five prizes set up in the will of Alfred Nobel, who died in 1896. Sweden’s central bank, the Riksbank, created it with a donation in 1968, and it follows the same selection process as the chemistry and physics prizes. Last year it went to Joel Mokyr, Philippe Aghion and Peter Howitt for research on how technology drives growth.
This year’s other prizes went to the South African judge Navi Pillay for peace, the Canadian-Icelandic writer Anne Carson for literature, Henri Kagan of France and Kenso Soai of Japan for chemistry, and Francis Halzen of Belgium for physics. The first award, in medicine, went to Karl Deisseroth, Peter Hegemann and Georg Nagel for optogenetics.
The winners will share a $1.2 million check and each receive a diploma and a gold medal at ceremonies on Dec. 10, the anniversary of Nobel’s death.