Preface

Keeping a book on macroeconomics up to date is a challenging and neverending task. The field is continually evolving, as new events and research lead to doubts about old views and the emergence of new ideas, models, and tests. The result is that each edition of this book is very different from the one before. This is truer of this revision than any previous one.

The largest changes are to the material on economic growth and on shortrun fluctuations with incomplete price flexibility. I have split the old chapter on new growth theory in two. The first chapter (Chapter 3) covers models of endogenous growth, and has been updated to include Paul Romer’s nowclassic model of endogenous technological progress. The second chapter (Chapter 4) focuses on the enormous income differences across countries. This material includes a much more extensive consideration of the challenges confronting empirical work on cross-country income differences and of recent work on the underlying determinants of those differences.

Chapters 6 and 7 on short-run fluctuations when prices are not fully flexible have been completely recast. This material is now grounded in microeconomic foundations from the outset. It proceeds from simple models with exogenously fixed prices to the microeconomic foundations of price stickiness in static and dynamic settings, to the canonical three-equation new Keynesian model (the new Keynesian IS curve, the new Keynesian Phillips curve, and an interest-rate rule for monetary policy), to the ingredients of modern dynamic stochastic general-equilibrium models of fluctuations. These revisions carry over to the analysis of monetary policy in Chapter 11. This chapter has been entirely reorganized and is now much more closely tied to the earlier analyses of short-run fluctuations, and it includes a careful treatment of optimal policy in forward-looking models.

The two other chapters where I have made major changes are Chapter 5 on real-business-cycle models of fluctuations and Chapter 10 on the labor market and unemployment. In Chapter 5, the empirical applications and the analysis of the relation between real-business-cycle theory and other models of fluctuations have been overhauled. In Chapter 10, the presentation of search-and-matching models of the labor market has been revamped and greatly expanded, and the material on contracting models has been substantially compressed.

Keeping the book up to date has been made even more challenging by the financial and macroeconomic crisis that began in 2008. I have deliberately chosen not to change the book fundamentally in response to the crisis: although I believe that the crisis will lead to major changes in macroeconomics, I also believe that it is too soon to know what those changes will be. I have therefore taken the approach of bringing in the crisis where it is relevant and of including an epilogue that describes some of the main issues that the crisis raises for macroeconomics. But I believe that it will be years before we have a clear picture of how the crisis is changing the field.

For additional reference and general information, please refer to the book’s website at www.mhhe.com/romer4e. Also available on the website, under the password-protected Instructor Edition, is the Solutions Manual. Print versions of the manual are available by request only—if interested, please contact your McGraw-Hill/Irwin representative.

This book owes a great deal to many people. The book is an outgrowth of courses I have taught at Princeton University, the Massachusetts Institute of Technology, Stanford University, and especially the University of California, Berkeley. I want to thank the many students in these courses for their feedback, their patience, and their encouragement.

Four people have provided detailed, thoughtful, and constructive comments on almost every aspect of the book over multiple editions: Laurence Ball, A. Andrew John, N. Gregory Mankiw, and Christina Romer. Each has significantly improved the book, and I am deeply grateful to them for their efforts. In addition to those four, Susanto Basu, Robert Hall, and Ricardo Reis provided extremely valuable guidance that helped shape the revisions in this edition.

Many other people have made valuable comments and suggestions concerning some or all of the book. I would particularly like to thank James Butkiewicz, Robert Chirinko, Matthew Cushing, Charles Engel, Mark Gertler, Robert Gordon, Mary Gregory, Tahereh Alavi Hojjat, A. Stephen Holland, Hiroo Iwanari, Frederick Joutz, Pok-sang Lam, Gregory Linden, Maurice Obtsfeld, Jeffrey Parker, Stephen Perez, Kerk Phillips, Carlos Ramirez, Robert Rasche, Joseph Santos, Peter Skott, Peter Temin, Henry Thompson, Matias Vernengo, and Steven Yamarik. Jeffrey Rohaly prepared the superb Solutions Manual. Salifou Issoufou updated the tables and figures. Tyler Arant, Zachary Brieg, Chen Li, and Melinda Mattos helped draft solutions to the new problems and assisted with proofreading. Finally, the editorial and production staff at McGraw-Hill did an excellent job of turning the manuscript into a finished product. I thank all these people for their help.