Robert E. Hall and Michael Woodford were on Monday awarded the Nobel prize in economics for work that underpins the models used by central banks and governments.

The U.S.-born pair were jointly awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, a prize established by Sweden's central bank in 1968, for their research into the "microeconomic foundations of macroeconomic stabilisation."

They will split the 12 million Swedish kronor ($1.19 million) prize.

Hall and Woodford have "significantly improved our ability to implement effective stabilisation policy," the Royal Swedish Academy of Sciences said.

"On the basis of these models, well-timed fiscal and monetary policy measures can reduce the economy's peaks and troughs."

Hall, born in California, is a professor at Stanford University, while Massachusetts-born Woodford is a professor at Columbia University.

"With them, we are better equipped to deal with shocks in the economy, such as energy crises or sudden changes in how much households consume," John Hassler, chair of the Committee for the Prize in Economic Sciences, said in a statement.