## Macroeconomics: A European Perspective, 4th edition

By Olivier Blanchard, Alessia Amighini and Francesco Giavazzi

**Contents:**

List of figures xi

List of tables xv

List of Focus boxes xvii

About the authors xix

Preface xx

THE CORE

INTRODUCTION 3

Chapter 1

A tour of the world 4

1.1 The pandemic of 2020 5

1.2 The crisis of 2008–9 9

1.3 The United States 11

1.4 The EU and the euro area 15

1.5 China 20

1.6 Looking ahead 22

Key terms 23

Questions and problems 23

Appendix 1: Where to find the numbers 25

Appendix 2: What do macroeconomists do? 26

Chapter 2

A tour of the book 27

2.1 Aggregate output 28

2.2 The unemployment rate 33

2.3 The inflation rate 36

2.4 Output, unemployment and the inflation rate: Okun’s law and the Phillips curve 39

2.5 The short run, the medium run and the long run 41

2.6 A tour of the book 42

Summary 44

Key terms 44

Questions and problems 45

Further reading 47

Appendix: The construction of real GDP and chain-type indexes 49

THE SHORT RUN 53

Chapter 3

The goods market 54

3.1 The composition of GDP 55

3.2 The demand for goods 56

3.3 The determination of equilibrium output 59

3.4 Investment equals saving: an alternative

way of thinking about the goods-market equilibrium 66

3.5 Is the government omnipotent? A warning 68

Summary 70

Key terms 70

Questions and problems 71

Chapter 4

**Financial markets**: I 74

4.1 The demand for money 75

4.2 Determining the interest rate: I 78

4.3 Determining the interest rate: II 83

4.4 The liquidity trap 87

Summary 90

Key terms 90

Questions and problems 91

Further reading 93

Chapter 5

Goods and financial markets:

the IS-LM model 94

5.1 The goods market and the IS relation 95

5.2 Financial markets and the LM relation 99

5.3 Putting the IS and LM relations together 100

5.4 Using a policy mix 103

5.5 How does the IS-LM model fit the facts? 108

Summary 110

Key terms 110

Questions and problems 110

Further reading 113

Chapter 6

Financial markets II: the extended IS-LM model 114

6.1 Nominal versus real interest rates 115

6.2 Risk and risk premiums 118

6.3 The role of financial intermediaries 120

6.4 Extending the IS-LM model 123

6.5 From a housing problem to a financial crisis: 2006–8 126

Summary 135

Key terms 135

Questions and problems 136

Further reading 139

THE MEDIUM RUN 143

Chapter 7

The labour market 144

7.1 A tour of the labour market 145

7.2 Movements in unemployment 147

7.3 Wage determination 150

7.4 Price determination 155

7.5 The natural rate of unemployment 156

7.6 Where we go from here 159

Summary 160

Key terms 160

Questions and problems 160

Further reading 163

Appendix: Wage- and price-setting relations versus labour supply and labour demand 164

Chapter 8

The Phillips curve, the natural rate of

unemployment and inflation 165

8.1 Inflation, expected inflation and unemployment 167

8.2 The Phillips curve and its mutations 168

8.3 The Phillips curve and the natural rate of unemployment 172

8.4 A summary and many warnings 174

Summary 180

Key terms 180

Questions and problems 181

Appendix: Derivation of the relation between

inflation, expected inflation and unemployment 185

Chapter 9

From the short to the medium run: the IS-LM-PC model 186

9.1 The IS-LM-PC model 187

9.2 From the short to the medium run 191

9.3 Complications and how things can go wrong 193

9.4 Fiscal consolidation revisited 195

9.5 The effects of an increase in the price of oil 197

9.6 Conclusions 201

Summary 202

Key terms 203

Questions and problems 203

Chapter 10

The COVID economic crisis 207

10.1 The economic effects of the lockdown 210

10.2 The macro policy response 212

10.3 The economy post-lockdown 216

10.4 The economy post-vaccine 220

Summary 222

Key terms 222

Questions and problems 223

THE LONG RUN 227

Chapter 11

The facts of growth 228

11.1 Measuring the standard of living 229

11.2 Growth in rich countries since 1950 232

11.3 A broader look across time and space 238

11.4 Thinking about growth: a primer 240

Summary 244

Key terms 244

Questions and problems 245

Further reading 246

Chapter 12

Saving, capital accumulation and output 247

12.1 Interactions between output and capital 248

12.2 The implications of alternative saving rates 251

12.3 Getting a sense of magnitudes 258

12.4 Physical versus human capital 264

Summary 266

Key terms 266

Questions and problems 267

Further reading 268

Appendix: The Cobb-Douglas production

function and the steady state 269

Chapter 13

**Technological progress** and growth 271

13.1 Technological progress and the rate

of growth 272

13.2 The determinants of technological progress 278

13.3 Institutions, technological progress and growth 282

Summary 286

Key terms 286

Questions and problems 286

Further reading 288

Appendix: How to measure technological

progress and the application

to China 289

Chapter 14

The challenges of growth 291

14.1 The future of technological progress 292

14.2 Robots and unemployment 293

14.3 Growth, churn and inequality 295

14.4 Climate change and global warming 304

Summary 308

Key terms 308

Questions and problems 308

Further reading 311

EXTENSIONS

EXPECTATIONS 315

Chapter 15

Financial markets and expectations 316

15.1 Expected present discounted values 317

15.2 Bond prices and bond yields 321

15.3 The stock market and movements in stock

prices 327

15.4 Risk, bubbles, fads and asset prices 333

Summary 337

Key terms 337

Questions and problems 338

Further reading 339

Appendix: Deriving the expected present

discounted value using real or nominal

interest rates 340

Chapter 16

Expectations, consumption and

investment 341

16.1 Consumption 342

16.2 Investment 349

16.3 The volatility of consumption and investment 356

Summary 357

Key terms 358

Questions and problems 358

Appendix: Derivation of the expected present

value of profits under static expectations 361

Chapter 17

Expectations, output and policy 362

17.1 Expectations and decisions: taking stock 363

17.2 Monetary policy, expectations and output 366

17.3 Deficit reduction, expectations and output 369

Summary 377

Key terms 377

Questions and problems 377

Further reading 380

THE OPEN ECONOMY 383

Chapter 18

Openness in goods and

financial markets 384

18.1 Openness in goods markets 386

18.2 Openness in financial markets 392

18.3 Conclusions and a look ahead 400

Summary 401

Key terms 401

Questions and problems 402

Further reading 403

Chapter 19

The goods market in an open economy 404

19.1 The IS relation in the open economy 405

19.2 Equilibrium output and the trade balance 408

19.3 Increases in demand – domestic or foreign 409

19.4 Depreciation, the trade balance and output 414

19.5 Saving, investment and the current

account balance 418

Summary 420

Key terms 420

Questions and problems 421

Further reading 422

Appendix: Derivation of the Marshall-Lerner condition 423

Chapter 20

Output, the interest rate and the

exchange rate 424

20.1 Equilibrium in the goods market 425

20.2 Equilibrium in financial markets 426

20.3 Putting goods and financial markets together 429

20.4 The effects of policy in an open economy 431

20.5 Fixed exchange rates 436

Summary 439

Key terms 440

Questions and problems 440

Appendix: Fixed exchange rates, interest rates

and capital mobility 442

Chapter 21

Exchange rate regimes 444

21.1 The medium run 445

21.2 Exchange rate crises under fixed exchange

rates 449

21.3 Exchange rate movements under flexible

exchange rates 452

21.4 Choosing between exchange rate regimes 455

Summary 460

Key terms 460

Questions and problems 461

Further reading 464

Appendix 1: Deriving the IS relation under fixed

exchange rates 465

Appendix 2: The real exchange rate and

domestic and foreign real interest rates 465

BACK TO POLICY 469

Chapter 22

Should policymakers be restrained? 470

22.1 Uncertainty and policy 471

22.2 Expectations and policy 475

22.3 Politics and policy 480

Summary 486

Key terms 487

Questions and problems 487

Further reading 489

Chapter 23

Fiscal policy: a summing up 490

23.1 What we have learned 491

23.2 The government budget constraint:

deficits, debt, spending and taxes 492

23.3 Ricardian equivalence, cyclical adjusted

deficits and war finance 500

23.4 The dangers of high debt 504

23.5 The challenges facing fiscal policy today 509

Summary 509

Key terms 510

Questions and problems 510

Further reading 513

Chapter 24

Monetary policy: a summing up 514

24.1 What we have learned 515

24.2 From money targeting to inflation targeting 516

24.3 The optimal inflation rate 522

24.4 Unconventional monetary policy 528

24.5 Monetary policy and financial stability 530

Summary 534

Key terms 534

Questions and problems 535

Further reading 538

EPILOGUE 539

Chapter 25

The story of macroeconomics 540

25.1 Keynes and the Great Depression 541

25.2 The neoclassical synthesis 541

25.3 The rational expectations critique 544

25.4 Developments in macroeconomics up to

the 2009 crisis 547

25.5 First lessons for macroeconomics after

the crisis 550

Summary 552

Key terms 552

Further reading 553

APPENDICES 555

Appendix 1 An introduction to national income

and product accounts 557

Appendix 2 A maths refresher 563

Appendix 3 An introduction to econometrics 568

Glossary 573

Symbols used in this book 584

Index 586

Publisher’s Acknowledgements 598