Nobel Prize in economics goes to 2 Americans for work helping to manage economic shocks

Stockholm — American-born economists Robert E. Hall and Michael Woodford won the Nobel memorial prize in economics on Monday for their work on models that have helped governments and central banks manage economic shocks.

"The laureates have helped us smooth out the economy's peaks and troughs," the academy said in a statement.

Woodford spoke to the committee by phone Monday from New York, saying: "It's a tremendous honor, it's a surprise."

"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."

For decades, governments responded to economic shocks by following the Depression-era prescriptions of 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 themselves and help growth get restarted.

Policymakers had thought economic management involved simple tradeoffs — 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.

"In separate contributions, Robert E. Hall and Michael Woodford helped build this new foundation for stabilization policy," Hassler said.

The economics prize is formally known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel. The central bank established it in 1968 as a memorial to Nobel, the 19th-century Swedish businessman and chemist who invented dynamite and established the five Nobel Prizes.

Nobel purists stress that the economics prize is technically not a Nobel Prize, but it is always presented together with the others on Dec. 10, the anniversary of Nobel's death in 1896.

The prize money this year is 12 million Swedish kronor (about $1.2 million), whether for an individual, small group of laureates or organization.

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