Tag: Nobel Prize in Economics

Hall and Woodford Win 2026 Nobel Prize in Economics

Photo of Robert Hall from news.stanford.edu

Photo of Michael Woodford from politicaleconomy.columbia.edu

Robert Hall of Stanford and Michael Woodford of Columbia have been awarded the 2026 Nobel Prize in Economics. Their careers have helped define the evolution of macroeconomics during the past 50 years.

Principles of economics is often taught as one semester of microeconomics and one semester of macroeconomics. In microeconomics we focus on analyzing the households’ decisions about which products to buy and on firms’ decisions about which products to sell and what prices to charge. In macroeconomics we switch the focus to the economy as a whole, analyzing what determines total production in the economy, as measured by GDP, and what determines the price level, as measured by the consumer price index (CPI) or the personal consumption expenditures (PCE) price index. An important part of macroeconomics is analyzing the effects of the federal government’s monetary and fiscal policies on production, employment, and prices.

Microeconomics and macroeconomics are connected because macroeconomic aggregates (like GDP, the unemployment rate, and the price level) ultimately depend on the decisions of households and firms. Similarly, the effects of fiscal and monetary policies on the economy depend on how households and firms react to the policies.

Image of John Maynard Keynes created by ChatGPT

The focus on economic aggregates in macroeconomics dates back to the publication of John Maynard Keynes’s General Theory of Employment, Interest, and Money in 1936. Keynes’s book was long and complicated, which led shorter, more straightforward, interpretations of his ideas by Nobel laureate John Hicks of Oxford and Alvin Hansen of Harvard to become widely accepted. The Hicks-Hansen interpretation was embodied in the IS-LM model, which focused on the relationships among a few macroeconomic variables. (We discuss the IS-LM model in the appendix to Chapter 18 of Money, Banking, and the Financial System.)

During the Great Inflation of the 1970s of the 1970s and early 1980s, many economists concluded that the basic IS-LM model was no longer a good guide to understanding events in the U.S. economy. That conclusion increased the interest in grounding macroeconomics in the basic decision making of households and firms. This approach became known as the microfoundations of macroeconomics.

This new focus on microeconomics led some economists to reject the idea that discretionary monetary and fiscal policy was able to stabilize the economy by reducing fluctuations in aggregate output and employment. This approach is called the New Classical Macroeconomics. (We discuss the New Classical Macroeconomics in the appendix to Macroeconomics, Chapter 13.) Other economists argue that discretionary policy can play a role in stabilizing the economy, which is a key argument advanced by Keynesians since the 1930s, but believe that policymakers need to take into account how households and firms react to policy. This approach is called the New Keynesian economics. The work of Hall and Woodford contributed to the development of New Keynesian economics.

Early in his career, Hall published an academic article making a major contribution to understanding the microfoundations of consumption spending. Hall’s work elaborated Milton Friedman’s permanent income hypothesis. As we discuss in Macroeconomics, Chapter 12, Section 12.2 and Chapter 16, Section 16.5, consumers are forward looking, which means their consumption decisions take into account not just their current income but also their expected future income—which Friedman called permanent income. For example, a real estate agent might have a high income in a year when she earns a commission on the sale of 15 houses and a much lower income in a year when the local housing market is weak and she earns a commission on only 2 houses. Most people like to smooth out their consumption over time, so the agent is likely to spend less of her current income in good sales years and more of her current income in the bad sales years.

Image created by ChatGPT

Hall formalized Friedman’s insight using the tools of dynamic optimization and also showed that the model fit the macroeconomic data well. One important implication of Hall’s work is that households are unlikely to significantly adjust their spending in response to temporary policy changes, such as a temporary cut in personal income taxes. Hall made a number of additional contributions to macroeconomics, including by analyzing why prices and wages don’t always respond quickly to changes in total spending. As we discuss in Macroeconomics, Chapter 10, Section 10.3, the federal government produces many statistics that make it possible to monitor the state of the economy, but the federal government does not officially decide when a recession begins or when it ends. Instead, most economists and policymakers accept the decisions of the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), a private research group located in Cambridge, Massachusetts. Hall served as chair of the committee for 46 years, from 1978 to 2024.

Image of the NBER building from the Wikipedia Commons

Woodford has made wide-ranging contributions to the development of New Keynesian economics. In particular, he developed a model that synthesized the contributions of a number of other economists to provide a general framework for understanding macroeconomics and for evaluating the effects of monetary policy. His 2003 book, Interest and Prices: Foundations of a Theory of Monetary Policy, has been particularly influential.

Image from amazon.com

The Nobel Committee’s announcement of the prize can be found here. A longer discussion of the Hall and Woodford’s work can be found here. The scope of their research can be seen by reviewing their curricula vitae, which can be found here and here. The amount of the prize this year is 12 million Swedish kronor (about $1.2 million).

Mokyr, Aghion, and Howitt Win 2025 Nobel Prize in Economics

Joel Mokyr (photo from news.northwestern. edu)

Philippe Aghion (photo from philippeaghion.com)

Peter Howitt (photo from brown.edu)

For most of human history there was little to no economic growth. Until the nineteenth century, the average person everywhere in the world lived at a subsistence level. For example, although the Roman Empire controlled most of Southern and Western Europe, the Near East, and North Africa for more than 400 years, the living standard of the average citizen of the Empire was no higher at the end of the Empire than it had been at the beginning.

Economists typically measure economic growth by the rate of increase in real GDP per capita. The following figure, updated from Chapter 11 of Macroeconomics (Chapter 21 of Economics), shows the slow pace of growth in real GDP per capita in the world economy from the year 1 to the year 1820 and the much faster rates of growth over the following periods. As discussed in Chapter 11, the figure relies on data compiled by Angus Maddison of University of Groningen in the Netherlands and—for recent years—data from the World Bank.

This year’s three Nobelists have contributed to understanding why economic growth accelerated sharply in the nineteenth century and why England was the first country to experienced sustained increases in real GDP per capita—an event labeled the Industrial Revolution. Joel Mokyr of Northwestern University has conducted decades of research into which innovations were crucial to economic growth and the institutional and economic advantages that allowed entrepreneurs in England to use those innovations to expand production much more rapidly than had happened before. Philippe Aghion of Collège de France and INSEAD and Peter Howitt of Brown University have focused on formally modeling the process of creative destruction that underlies sustained economic growth. The classic discussion of creative destruction appears in Joseph Schumpeter’s book Capitalism, Socialism, and Democracy, published in 1942.

In Macroeconomics Chapter 21, we discuss the process of creative destruction in the context of economic growth. Creative destruction occurs as technological change results in new products that drive firms producing older products out of business. Examples are automobiles driving out of business producers of horse-drawn carriages in the early twentieth century. Or Netflix and other movie streaming sites driving video rental stores out of business in more recent years.

The Nobel Committee’s announcement of the prize can be found here. A longer discussion of the Nobelists’ work can be found here. The scope of their research can be seen by reviewing their curricula vitae, which can be found here, here, and here. The amount of the prize this years is 11 million Swedish kronor (about $1.2 million). Mokyr receives half and Aghion and Howitt receive the other half.

Acemoglu, Johnson, and Robinson Win the 2024 Nobel Prize in Economics

Daron Acemoglu and Simon Johnson (Credit: Acemoglu, Adam Glanzman; Johnson, courtesy of MIT, from news.mit.edu)

James Robinson (photo from news.uchicago.edu)

Many economic studies have a relatively limited objective. For instance, estimating the price elasticity of demand for soda in order to determine the incidence of a soda tax. Or estimating a Keynesian fiscal policy multiplier in order to determine the effects of a change in federal spending or taxes. (We consider the first topic in Microeconomics, Chapter 6, and the second topic in Macroeconomics, Chapter 16.)

Other economic studies consider much broader questions, such as why are some countries rich and other countries poor? As the late Nobel laureate Robert Lucas once wrote: “The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.”

Today, the Royal Swedish Academy of Sciences awarded the 2024 Nobel Prize in Economic Sciences to Daron Acemoglu and Simon Johnson of MIT, and to James Robinson of the University of Chicago for “for studies of how institutions are formed and affect prosperity.” Acemoglu, Johnson, and Robinson (AJR) have published work highlighting the key importance of a country’s institutions in explaining whether the country has experienced sustained economic growth. Their work builds on earlier studies by the late Douglas North of Washington University in St. Louis, who received the Nobel Prize in 1993.

The institutional approach to economic growth differs from other approaches that focus on variables such as temperature, prevalence of disease, ethnic fragmentation, resource endowments, or governments adopting flawed development strategies in explaining differences in growth rates in per capita income across countries.

Two of AJR’s most discussed papers are “The Colonial Origins of Comparative Development: An Empirical Investigation,” which was published in the American Economic Review in 2001 (free download here), “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution,” which was published in the Quarterly Journal of Economics in 2002 (available here). In these papers, the authors argue that the institutions European countries established in their colonies helped determine economic growth in those countries even decades after colonization.

As with any analysis that covers many countries over long periods of time, AJR’s analysis of the effect of colonialism on economic growth has attracted critiques focused on whether the authors have gathered data properly and whether their data may be better explained with a different approach.

The authors, writing both separately and jointly, have explored many issues beyond the effects of colonialism on economic growth. The wide scope of their research can be seen by reviewing their curricula vitae, which can be found here, here, and here. The announcement by the Nobel committee can be found here.

Claudia Goldin Wins the Nobel Prize in Economics

Claudia Goldin (Photo from Goldin’s web page at havard.edu.)

Claudia Goldin, the Henry Lee Professor of Economics at Harvard, has been awarded the 2023 Nobel Prize in Economic Sciences. Goldin’s research is wide-ranging, with a focus on the economic history of women and on gender disparities in wages and employment. She received her PhD from the University of Chicago in 1972 for a thesis that was published in 1976 as Urban Slavery in the American South, 1820 to 1860: A Quantitative History. Her thesis adviser, Robert Fogel, was awarded the Nobel Prize in 1993 for his work in economic history. He shared the prize that year with Douglas North of Washington University in St. Louis. Goldin’s work on economic history contributed to the cliometric revolution, which involves the application of theoretical models and econometric methods to the study of historical issues.  At the time of the award to Fogel and North, Goldin discussed their research and the cliometric revolution here.

Goldin’s pioneering and influential research on the economic history of women was the basis for her 1990 book Understanding the Gender Gap: An Economic History of American Women. The themes of that book were expanded on in 2021 in Career & Family: Women’s Century-Long Journey toward Equity, and in her forthcoming An Evolving Force: A History of Women in the Economy.

In research with Lawrence Katz, also a professor of economics at Harvard, Goldin has explored how technological change and educational attainment have affected income inequality, particularly the wage premium skilled workers receive. Goldin and Katz summarized their findings in 2008 in the influential book, The Race between Education and Technology.

The wide scope of Goldin’s research can be seen by reviewing her curriculum vitae, which can be found here. The announcement by the Nobel committee can be found here.

If You Have Some Cash to Spare ….

you can bid for Paul Samuelson’s Nobel Prize Medal here. Note that at the time of posting the minimum bid required was $495,000.

You can read a brief biography of Samuelson on the Nobel site here. You can read the lecture Samuelson delivered on the occasion of being awarded the price here. (Note that the lecture contains technical material.)