Nobel Prize in economics 2026: Robert Hall and Michael Woodford win for the theory behind central bank rate decisions

The 2026 Nobel Memorial Prize in Economic Sciences has gone to Robert E. Hall of Stanford University and Michael Woodford of Columbia University "for microeconomic foundations of macroeconomic stabilisation", the Royal Swedish Academy of Sciences announced in Stockholm on Monday 12 October, CBS News reported. The two American economists share 12 million Swedish kronor, about $1.2 million, or roughly Rs 33 crore at today's dollar rate.

What the prize is for

In plain terms, Hall and Woodford built the theory behind how central banks and governments respond when an economy is hit by a shock, such as an oil price spike or a sudden drop in what households spend. Their models start from how people and firms actually decide (the "microeconomic foundations") and scale up to inflation, jobs and growth for a whole country.

• The Academy said the laureates "have helped us smooth out the economy's peaks and troughs".
• Committee chair John Hassler said their work gives "a stable theoretical foundation for the models" now used by central banks around the world.
• Woodford, reached by phone in New York, said: "It's a tremendous honor, it's a surprise."

Michael Woodford is best known for Interest and Prices (2003), the book that set out how a central bank can steer inflation through its interest rate and, just as much, through what it tells markets about future rates. Robert Hall, a senior fellow at Stanford's Hoover Institution, has spent five decades on consumption, unemployment and business cycles, and for years chaired the panel that dates US recessions.

Why it matters in Pakistan

The ideas honoured on Monday are the ones behind the State Bank of Pakistan's monetary policy meetings. When the SBP raises or cuts the policy rate and publishes its inflation outlook, it is using the approach Woodford formalised: move the rate, and explain the path ahead so banks, businesses and borrowers adjust before inflation does. That rate feeds into KIBOR, which sets what you pay on a car or home loan. You can see what a change of one or two points does to a monthly instalment with our home loan calculator.

Pakistan has had its share of the shocks these models deal with, from the 2022 floods to oil price swings that move petrol prices every fortnight, which is why the debate over how fast the SBP should cut rates keeps coming back.

The 2026 Nobel prizes so far

The economics prize was the last of this year's awards. The Peace Prize went on Friday to South African judge Navi Pillay. The economics prize was not one of the five original Nobel prizes; it was set up by Sweden's central bank, the Riksbank, in 1968 in Alfred Nobel's memory, and is presented with the others on 10 December.