Meet Robert E. Hall and Michael Woodford: The Nobel Prize-winning economists

The US economists awarded the prize for their research into how central banks and governments can better handle economic shocks

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Robert E. Hall and Michael Woodford have been awarded the Nobel memorial prize in economics for their work on models that have aided governments and central banks manage economic shocks, such as energy crises and inflation.

“The laureates’ research has made it possible to manage major macroeconomic crises far more effectively than before,” the Nobel committee wrote. “It has been hugely beneficial during the pandemic and the energy crises of recent years.″

Hall is affiliated with Stanford University in California, and Woodford with Columbia University in New York.

The Nobel committee said the laureates' work has created the theoretical foundation for models 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," John Hassler, chair of the Committee for the Prize in Economic Sciences, said in a news release.

For decades, governments responded to economic shocks by following the Depression-era prescriptions of the British economist John Maynard Keynes: intervene in the economy by lowering taxes and hiking government spending, thereby encouraging consumers and businesses to spend and invest and help restart growth.

“This is the Keynesian recipe and it worked well — until it didn’t,’’ said Timo Boppart of the Nobel economics prize committee. Policymakers had thought economic management involved simple trade-offs – unemployment, for instance, would stay low at a time of high inflation and rise when inflation fell. But the “stagflation’’ of the 1970s – when the world economy experienced simultaneous high inflation and high unemployment – proved the formula was simplistic.

Some economists argued that government attempts to intervene in the economy were doomed to fail. But Hall and Woodford, in separate contributions, set about improving the Keynesian model to take into account how consumers and businesses actually make decisions about whether to invest and spend.

“Economic outcomes are the result of millions of decisions made at the microlevel by households and businesses,’’ the Nobel committee wrote. “Using models based upon this approach, rather than simply studying the economy from a macro perspective, like a bird’s eye view, Hall’s and Woodford’s research has generated a paradigm shift in the theory of stabilisation policy.’’

Hall studied the way that consumers’ decisions about whether and how much to spend depend on what they expect their future income to be.