Aarva

Noahpinion ·Behind the news

A Nobel for New Keynesian Macro, at Last!

by Noah Smith

Published 2026-10-13 05:28:43+00:00

How do you steer an economy when the people inside it anticipate your every move?

0:00 / 18:59 · Narrator Algieba

Context

Central bankers spent decades trying to figure out how to slow down an economy without crashing it. A 13 October 2026 essay explains how two economists finally built a working model—a breakthrough that just won a Nobel Prize. The old economic formulas relied on rigid math, but their new approach accounts for human expectations. It all builds to a very practical question. When inflation spikes, what actually forces prices back down without throwing millions of people out of work?

Show notes

A history of New Keynesian macroeconomics and the models that modern central banks use to set interest rates. Traces the field's development from the 1970s through the 2008 financial crisis, explaining how economists Bob Hall and Mike Woodford combined consumer expectations with slow-moving prices. Concludes by examining how their theories apply to the drop in post-pandemic inflation.

Read on Noahpinion →