The award was announced in Stockholm on Monday. According to the prize committee, their work provided the foundation for economic models used by central banks and finance ministries worldwide to respond to economic shocks.

Reuters quoted prize committee chairman John Hassler as saying that the economists’ research helps policymakers address challenges such as energy crises and sudden changes in household spending.

Their work highlights the importance of individual decisions made by households and businesses in shaping the wider economy. Rather than focusing only on broad economic trends, their research examines how millions of individual choices collectively influence economic activity.

Woodford, 70, who is affiliated with Columbia University, said governments must consider how people understand and respond to policy decisions, rather than relying solely on policy measures.

He said his research helped inform central bank policymaking during the 2008 global financial crisis. At the time, providing clear guidance about the future direction of interest rates proved important alongside further interest rate cuts.

Such guidance allows central banks to influence the expectations of households and businesses about future borrowing costs and economic conditions.

The economists’ work has also contributed to the understanding of two important economic concepts: sticky inflation and the output gap.

Sticky inflation refers to the tendency of prices to adjust slowly even when demand changes. The output gap measures the difference between an economy’s actual production and its potential output, helping policymakers assess inflationary pressures and economic weakness.

Hall, 83, is affiliated with Stanford University, while Woodford works at Columbia University.

The two economists will share a prize of 12 million Swedish kronor, equivalent to approximately $1.2 million.

The Nobel Prize in Economic Sciences was first awarded in 1969. Unlike the original five Nobel Prizes established under Alfred Nobel’s will, the economics award was created by Sweden’s central bank.

Last year’s prize was awarded to Joel Mokyr, Philippe Aghion and Peter Howitt for research into innovation-driven economic growth and improvements in living standards.