Robert E. Hall and Michael Woodford won the Nobel Prize in economics for work on the microeconomic foundations of macroeconomic stabilisation. The committee says their models now underpin how central banks and governments handle economic shocks.
Two American economists, Robert E. Hall and Michael Woodford, won the Nobel Prize in economics for their work on the "microeconomic foundations of macroeconomic stabilisation". The Sveriges Riksbank Prize in Economic Sciences is worth 12 million Swedish kronor (£900,000).
Prize committee points to models used by central banks
John Hassler, chair of the prize committee, said the laureates' work gave a stable theoretical foundation for models now used by central banks and governments around the world. He added that, with them, policymakers are better equipped to deal with shocks such as energy crises or sudden changes in household consumption.
Woodford was among the predicted winners. The Guardian describes him as one of the architects of modern forward guidance, the idea that central banks can influence the economy by shaping public expectations about inflation, rather than just through interest rates.
Woodford points to the 2008 crisis
Asked at the press conference whether an economic event had tested his framework, Woodford cited how central banks adapted their toolkit to the 2008 global financial crisis. Cutting borrowing costs alone could not solve the slump in demand, according to Bloomberg's account of his answer. Of forward guidance, Woodford said: "It didn't magically solve the problem, but I think it was an important contribution."
Costas Milas, an economics professor at the University of Liverpool, said Woodford's work has lessons for UK policymakers as they try to unwind stimulus measures implemented since the financial crisis.
Hall's fresh-water and salt-water divide
Hall is also known for coining the fresh-water versus salt-water split in American macroeconomics. A fresh-water economist, he wrote 50 years ago, believes economic fluctuations are largely attributable to supply shifts. The salt-water view holds that shifts in demand cause fluctuations and that government policy can affect demand.
The award is the 58th since 1969, and the Guardian notes that 101 individuals have won it, only three of them women.
Source: The Guardian
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