Toward a Macroeconomics of the Medium Run

T hese days macroeconomics has become more respectable than it used tobe. I can remember when many economists liked to say: Microeconomicsis not problematic, but I just don’t understand macroeconomics. There was a definite implication that something must be wrong with macroeconomics, not with the observer. Of course macroeconomics cannot be “exact; ” it has to work by rough analogy and empirical compromise. Maybe a certain raffishness is inevitable. Most economists work on microeconomic problems, with increasing use of new microeconomic data. But now it is widely understood that macroeconomics is at the heart of economics; it will not do to be snooty about it. This centrality will continue, for the best possible reason: the need to understand current events, especially unfavorable ones, and to formulate policies—even benign neglect is a policy—to deal with them. For the same reason, the characteristically close connection be-tween macroeconomic theory and empirical work is very unlikely to change. My main goal in this essay is to say something about leftover open questions in macroeconomics, as well as new phenomena that need to be accommodated in early 21st century macroeconomics, and the sorts of ideas that might make progress possible. The occasion and the space available require that I keep to a fairly high level of generality. This is not the time to single out specific research questions: I think there is a need for more investigation of the short-run relation between output and employment, for example, but this is not the occasion to go on about it