The 2026 Nobel Prize in Economic Sciences, awarded to Robert E. Hall and Michael Woodford, celebrates a profound transformation in macroeconomics. Their pioneering research helped explain economic fluctuations and inform monetary and fiscal stabilisation policy through models grounded in households’ and firms’ decisions and expectations
Expectations and economic policy
Hall’s research transformed our understanding of consumption by developing testable implications of theories emphasising 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. However, the effects of economic policies and shocks do not stop at national borders in an interconnected global economy.
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 central to the research of Giancarlo Corsetti, Pierre Werner Chair at the Robert Schuman Centre for Advanced Studies and Joint Chair in the Department of Economics at the European University Institute. The Nobel Committee’s scientific background document cites two influential papers by Corsetti and his coauthors in its discussion of interactions between economies, natural extensions of the questions explored by Hall and Woodford.
Welfare and macroeconomic interdependence
The first, Welfare and Macroeconomic Interdependence (2001), coauthored with Paolo Pesenti and published in the Quarterly Journal of Economics, examined whether policies that stimulate an economy’s output also improve households’ welfare. It showed 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.
International risk sharing
The second, 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, examined why international borrowing and lending may leave countries poorly insured against economic shocks. A productivity gain can increase demand for domestic goods by more than it increases their supply, raising export prices relative to import prices. This strengthens purchasing power at home while weakening it abroad, widening differences in consumption across countries.
Together, these papers show how international trade and financial links shape the effects of economic policies and shocks, determining the distribution of their costs and benefits across countries.
For the EUI Department of Economics, the recognition of Giancarlo’s research in the Nobel Committee’s scientific background is a source of great pride and a testament to the enduring and far-reaching influence of his work on international macroeconomics.
Author: Leonardo Melosi and Brian Amorim Cabaço
- Leonardo Melosi — Professor of Economics, European University Institute.
Email: Leonardo.Melosi@eui.eu - Brian Amorim Cabaço— Assistant Professor in Macroeconomics, European University Institute.
Email: brian.cabaco@eui.eu