Keeping a book on macroeconomics up to date feels Sisyphean. 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. When the first edition of this book was published in 1996, financial crises and the zero lower bound on nominal interest rates were viewed as of only minor importance to macroeconomics; the main focus of work on monetary policy was its impact on average inflation, with little attention to its role in stabilization policy; each of the three equations of what is now the canonical new Keynesian model had only recently been developed, and they had not yet been brought together; and there had been almost no substantial empirical work on the role of institutions in cross-country income differences. All that—and much more in macroeconomics—has changed dramatically.

  One result of the rapid evolution of the field is that each edition of this book is very different from the one before. At this point, the book has only a moderate resemblance to the first edition. Most of the material in this edition was either not present at all in the first edition or has been revised considerably. Indeed, a substantial majority of the papers cited in the current edition had not been written when the first edition was published.

  Many of the changes since the first edition are new to this edition. The most important is the addition of a new chapter, Chapter 10, on financial markets and financial crises. The financial and macroeconomic crisis that began in 2008 showed the critical importance of financial markets to the macroeconomy. The new chapter covers the role of financial markets in Walrasian economies; investment under asymmetric information and the financial accelerator; the possibility of excess volatility in asset prices; the classic Diamond–Dybvig model of bank runs; and the macroeconomics of contagion and financial crises. In keeping with the increasingly central role of empirical work in macroeconomics, three sections of the chapter are devoted entirely to empirical applications.

  There are also large changes to the rest of the book. Among the largest are the addition of a new section in Chapter 12 on the zero lower bound, which has been of first-order importance to macroeconomic developments over the past decade; a new section in Chapter 8 on buffer-stock saving, which provides an ideal vehicle for introducing both dynamic programming and a first look at the use of numeral methods; and a new section in Chapter 7 on the forward guidance puzzle, which starkly shows some of the limitations of the canonical new Keynesian model. I have also overhauled much of the presentation of empirical work on consumption in Chapter 8, pruned unnecessary or outdated material, and made revisions throughout to try to further improve the exposition. And I have continued to devote a great deal of attention to the end-of-chapter problems, which I view as invaluable for strengthening the reader’s understanding of the material, concisely introducing extensions of the core material, and challenging the reader to develop important skills. Some of my favorites among the new problems are 1.10, 2.13, 8.16, 8.17, 9.4, and 10.10.

  For additional reference and general information, please refer to the book’s website at www.mhhe.com/romer5e. 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 Education 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, I am indebted to Laurence Ball and Kinda Hachem for their extremely valuable guidance and feedback concerning the material that is new to 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, Jinill Kim, 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, Patrick Toche, Matias Vernengo, and Steven Yamarik. I am also grateful to the many readers who have written to point out specific typos, inconsistencies, and ambiguities. Jeffrey Rohaly once again prepared the superb Solutions Manual. Benjamin Scuderi updated the tables and figures, provided valuable assistance and feedback concerning many aspects of the new material, and helped with the 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.