The 2026 Nobel Prize in Economic Sciences went to Robert E. Hall and Michael Woodford. Their pioneering research transformed our understanding of economic fluctuations and the design of monetary and fiscal stabilisation policy.
The Nobel Committee’s scientific background document — which details the technical merit, novelty, and transformative impact of the honoured work — twice cites the research of Giancarlo Corsetti, Economics Professor and Joint Chair at the EUI Department of Economics and Pierre Werner Chair at the Robert Schuman Centre for Advanced Studies. Coauthored by Corsetti, the two cited papers address interactions between economies, natural extensions of the questions explored by Hall and Woodford.
In an interconnected global economy, the effects of economic policies and shocks do not stop at national borders. How do monetary and fiscal policies in one country affect its trading partners? How do exchange rates transmit economic disturbances internationally? And to what extent can countries share the risks associated with economic fluctuations? These questions are key to Corsetti’s research.
The first paper, Welfare and Macroeconomic Interdependence (2001), coauthored with Paolo Pesenti and published in the Quarterly Journal of Economics, examines whether policies that stimulate an economy’s output also improve households’ welfare. It demonstrates that an unexpected monetary expansion can depreciate the currency and raise output yet leave households worse off because the country’s exports buy fewer imports.
The second paper, International Risk Sharing and the Transmission of Productivity Shocks (2008), coauthored with Luca Dedola and Sylvain Leduc and published in the Review of Economic Studies, examines why international borrowing and lending may leave countries poorly insured against economic shocks. A productivity gain can increase demand for domestic goods faster than supply, raising export prices relative to import prices. This strengthens domestic purchasing power while weakening it abroad, widening differences in consumption across countries. The connection with New-Keynesian theory is worked out in detail in companion papers by the same authors, High exchange-rate volatility and low pass-through, published in the Journal of Monetary Economics (Vol. 55, Issue 6, September 2008, pp. 1113–1128) and Optimal Monetary Policy in Open Economies.
Together, these papers illustrate how international trade and financial links shape the effects of economic policies and shocks, determining the distribution of their costs and benefits across countries.
More about the 2026 Economics Nobel
Robert E. Hall and Michael Woodford’s pioneering research transformed macroeconomics by defining the mechanisms of economic fluctuations and informing monetary and fiscal stabilisation policy through models grounded in households’ and firms’ decisions and expectations.
Hall’s research changed our understanding of consumption by developing testable implications of theories that emphasise households’ expectations about future income. His work provided a foundation for analysing fiscal stabilisation policy, helping explain how the effects of tax changes and government transfers depend on households’ expectations and their ability to smooth consumption over time.
Woodford was a central architect of the modern New Keynesian framework, combining forward-looking household spending, firms’ pricing decisions when prices adjust slowly, and central bank interest-rate policy. His work underpins models widely used by central banks to analyse economic fluctuations and guide monetary policy.
Reflecting on Woodford’s influence and the broader evolution of the field, Professor Corsetti notes that “from the mid-1990s, the construction of New Keynesian theory, which initially developed in parallel with the new open-economy macro models, was a great collective achievement and a period of profound intellectual excitement. Michael Woodford led in setting the agenda: he translated complex economic theory into the language and framework of monetary policymaking, shaping the technical tools and strategies of central banks around the world.’’
Highlighting the connection to his own research at the EUI, Corsetti adds: “From the very beginning, the international dimension of monetary policy served as a testing ground for the theory. It added a further layer of complexity that remains a challenge to this day. Work on multi-country models drew attention to financial imperfections, cross-country differences in technology and growth, and the role of relative price adjustment in driving inflation. I carried out an important part of my own work on these questions during my first spell at the EUI (2003-2010), thanks to the exceptional environment the Institute offered. Many of the questions raised then remain open, and it seems that they continue to inspire excellent new work by our researchers.’’
Giancarlo Corsetti is Professor of Economics at the EUI Department of Economics and Pierre Werner Chair at the Robert Schuman Centre for Advanced Studies. Corsetti is a member of the United Nations High-level Advisory Board on Economic and Social Affairs. His contributions range from models of the international economy and open macro models to empirical and theoretical work on currency, financial and sovereign crises, monetary and fiscal policy, and international finance.