Raising readers' rates of interest

This text is targeted at a wide audience, from intermediate and advanced undergraduates to postgraduates and professionals. Its approach will be familiar to those who have read the authors' earlier volume, Macroeconomics and the Wage Bargain . The text under review focuses on macroeconomics with imperfections.

The coverage, however, is much greater. Not only are there wholly new topics, such as two chapters on growth and one on political economy, but there is a much stronger discussion of policy connected to the experiences and institutions of a range of countries. This, together with an expositional style that prefers diagrams to mathematics where possible, explains how the text might quite plausibly be used by such a wide audience.

In keeping with recent trends, the basic macromodel that is refined and applied comprises the IS curve, a version of the Phillips curve and a monetary policy rule. It is nevertheless distinctive because of the way the Phillips curve is based on varieties of imperfect competition, assumptions regarding expectation formation and degrees of wage and price inertia.

Thus, the contrasting set of microfoundations that comprise the new classical macroeconomics does not so much develop systematically as appear along the way in the form of special cases.

Since much current central bank discussion of policy is phrased in terms of versions of such an imperfectly competitive three-equation model, the key position of this model in the text naturally gives the discussion of topics a contemporary policy feel, and this is well exploited throughout.

The chapters on growth are good and notable for the space devoted to Schumpeterian models. The coverage of the political economy aspects of macro-policy is more extensive than one would ordinarily expect in a text of this kind. The applications of the theory to economic performance, and unemployment in particular, in a wide range of countries will engage every type of audience. It is also good to see variants of imperfect competition such as V. Bhaskar's fairness model, as they do not usually appear in texts of this kind and have interesting properties.

My only complaint is that more space might usefully have been given to the policy issues, such as the term structure of interest rates that sometimes perplexes policymakers and the dilemma these people also face in the conduct of monetary policy when there are asset bubbles.

The ancillaries comprise the minimum one might expect. There is a checklist of questions and answers for each chapter available online for lecturers.

There are also downloadable diagrams. So if you have come to rely on pyrotechnics of this sort, then you might be a touch disappointed. This is small beer, however. My preference is for content, and here the text scores brilliantly. In short, if, like me, you have been waiting a long time for the successor to Macroeconomics and the Wage Bargain , you will not be disappointed.

Shaun Hargreaves Heap is professor of economics, University of East Anglia.