{"text":[[{"start":8.78,"text":"The American economists whose work underpinned central banks’ responses to the 2008 financial crisis have won this year’s Nobel Prize for economics — just as the US Federal Reserve takes a new tack under its chair Kevin Warsh."}],[{"start":23.793,"text":"Robert E Hall, a professor at Stanford University, and Michael Woodford of Columbia University won recognition for developing the New Keynesian models that are now used by all central banks and finance ministries around the world to smooth the ups and downs of economic cycles."}],[{"start":39.86,"text":"Their work helped to resolve debates sparked by the oil crises of the 1970s, when high inflation rose in tandem with high unemployment, leading many people to feel traditional Keynesian policies had done more harm than good."}],[{"start":53.34,"text":"“Quite simply, there are no other viable alternatives [to their models],” the Royal Swedish Academy of Sciences said in its explanation of the award, adding that Hall and Woodford had helped “to build a new framework from the ground up”, by showing how the millions of decisions taken by households and businesses shaped economic outcomes."}],[{"start":73.46,"text":"The Nobel committee’s decision to recognise a key architect of the unorthodox tools deployed by central banks following the 2008 crisis is striking given the very different approach the Fed is taking under Warsh’s leadership, however."}],[{"start":87.18,"text":"One of the key insights embedded in Woodford’s work — that households’ and businesses’ decisions are governed by their expectations of the future — proved crucial in the aftermath of the financial crash, as central banks hit the limits of conventional policy and sought new tools to boost demand."}],[{"start":103.02,"text":"Hall’s key breakthrough was to show that changes in consumer spending are unpredictable, because households act on expectations of future income and change their behaviour only after an event they could not anticipate."}],[{"start":115.1,"text":"Woodford, in his 2003 book Interest and Prices, included Hall’s result while showing that businesses’ decisions are also governed by their expectations, including on costs, competitors and future interest rates."}],[{"start":128.1,"text":"The book — now a reference work for monetary policymakers — had clear practical consequences for central banks, the Nobel committee noted, making “clear and credible communication . . . vital to their operations”."}],[{"start":140.1,"text":"Woodford went on to become a forceful advocate of so-called “forward guidance”, where central banks give information about the intended policy path in order to shape expectations and make their current policy more effective."}],[{"start":153.54,"text":"His research “gave central banks a framework in which what they say about tomorrow matters as much as what they do today — which is why every ECB press conference is now read word for word,” said Moritz Schularick, president of Germany’s Kiel Institute for the World Economy, calling the award “a prize for the operating manual of modern economics”."}],[{"start":174.58,"text":"Such forward guidance was “an important part” of the policy response to the 2008 crisis, when central banks had cut interest rates close to zero and were urgently in need of new tools, Woodford told a press conference after the prize was announced on Monday. He added: “It didn’t magically solve the problem but it was an important contribution.”"}],[{"start":194.94,"text":"The modern frameworks he developed also helped central banks understand how the quantitative easing policies they pioneered in the aftermath of the crisis would feed through to the real economy, Woodford added."}],[{"start":206.54,"text":"The award won accolades from policymakers, with Christine Lagarde, president of the European Central Bank, saying the two winners had “greatly improved our understanding . . . and strengthened the foundations for effective policy”."}],[{"start":218.62,"text":"Gita Gopinath, former IMF chief economist, said their research had “transformed the practice of macro policy” while Olivier Blanchard — another prominent New Keynesian — described Woodford’s book as an “encyclopedia”."}],[{"start":232.42,"text":"Woodford’s work has won acclaim, however, just as the Fed is undertaking a broad review of its communications and other key policies under Warsh."}],[{"start":241.1,"text":"Warsh, a longstanding critic of forward guidance, quit the Fed in 2011 partly because he objected to the then-chair Ben Bernanke’s decision to expand a vast bond-buying programme to lower long-term borrowing costs, called quantitative easing. He has also criticised the central bank’s communications strategy."}],[{"start":259.3,"text":"Since taking over at the Fed earlier this year, Warsh has signalled the start of a more tight-lipped era, giving only terse commentary on interest rate decisions."}],[{"start":267.86,"text":"This story has been amended to remove an erroneous reference to the Fed introducing a three-week delay between decisions and publication of the minutes showing their rationale"}],[{"start":281.62,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1791859020_2648.mp3"}