They both receive the prize for having “developed a new type of macroeconomic models that have significantly improved the possibilities for conducting effective stabilization policy.”
Robert E Hall and Michael Woodford developed new ways to explain and measure the measures used to deal with recessions, financial crises, high unemployment and inflation shocks.
Applied in acute situations
The first steps were taken in the late 1970s, after a decade in which previous models of stabilization policy - rooted in the theories that economist John Maynard Keynes developed in the 1930s - proved inadequate. The models continued to evolve over several decades.
They were quickly applied in acute situations by governments and central banks around the world.
According to the prize citation, Hall and Woodford have helped policymakers manage crises by viewing economic developments as the result of millions of decisions made by individuals and businesses about consumption, pricing and investment.
This year’s laureates have created a “stable theoretical foundation” for handling different types of “disruptions” in the economy, whether a pandemic or an energy crisis, according to the Royal Swedish Academy of Sciences.
They have helped us stabilize the economy, to ensure that when unemployment rises, we quickly bring it down to normal levels, and the same goes for inflation, says Per Krusell, professor of economics at Stockholm University and secretary of the Economics Prize Committee.
“Immensely better than before”
Crises don’t go away, but the laureates’ calculation techniques have made it easier to soften the blow.
It’s not perfect, but it’s incredibly much better than before, says Krusell, adding:
We will be hit by crises. The question is how we handle them and how quickly we can bounce back.
The economics prize is a huge honor, according to Michael Woodford. But also a bit of a surprise.
But it feels very good, he says via link.
Robert E Hall is 83 years old and a professor at Stanford University in California. Michael E Woodford, born in 1955, is a professor at Columbia University. They share the prize money of twelve million kronor (about $1.1 million).
The Prize in Economic Sciences in Memory of Alfred Nobel was established in 1968 by the Swedish Central Bank (Sweden’s central bank).
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