University of Chicago alum, former faculty member among Nobel Prize in economics winners

A University of Chicago alum and former faculty member was one of the two Americans who won the Nobel Prize in economics this week.

The Royal Swedish Academy of Sciences announced Monday that American-born economists Robert E. Hall and Michael Woodford were the winners of the Nobel Memorial Prize in Economics for their work on models that have helped governments and central banks manage economic shocks.

Woodford, 70, is now the John Bates Clark Professor of Political Economy at Columbia University in New York. But he earned his bachelor's degree from the College at the University of Chicago in 1977, and taught at the U of C's Graduate School of Business — now known as the Booth School of Business — from 1986 until 1989. He became a member of UChicago's Department of Economics in 1989, and continued in that position until 1995.

Woodford is the 102nd scholar associated with the University of Chicago to win the Nobel Prize, and the 14th alum of the College to do so.

"Michael Woodford holds a special place in the University of Chicago community as both an alumnus of the College and a former faculty member," U of C President Paul Alivisatos said in a news release. "I am delighted that the Nobel Committee has recognized him for his work in addressing economic shocks, research that has proved invaluable to policymakers around the world."

Woodford's former colleague Anil Kashyap, the distinguished service professor of economics and finance at the Booth School of Business, called Woodford a "spectacular colleague" who was quintessentially "curious, generous and brilliant," the university said.

"The prize for Hall and Woodford is being celebrated by macroeconomists everywhere," Kashyap said in the release. "These are two giants in the field who have done groundbreaking work."

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.

Hall and Woodford set about coming up with an improved model that took into account how consumers and businesses actually made decisions about whether to invest and spend.

"Mike Woodford did the (almost) impossible. He developed a very rigorous theory that became quantitative and changed the way that central banks do monetary policy," Nobel laureate Douglas W. Diamond, the Merton H. Miller distinguished service professor of finance at UChicago, said in the release. "I miss his days at the [then] GSB. He was a standout colleague."

In 2003, Woodford also published the groundbreaking volume: "Interest and Prices: Foundations of a Theory of Monetary Policy," an analysis of how businesses set prices. A major element of the model was how the public understands policy and future uncertainty.

"The people who are in the markets and making decisions about spending … their expectations and their understanding of what policy is likely to be like in the future are actually crucial to the effects of policy," Woodford was quoted by UChicago.

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.

The majority of previous economics winners have been from the U.S., the Reuters news agency points out, adding that only three women have won — most recently, Claudia Goldin in 2023 for work on how gender affects pay and employment over time in the U.S. 

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.