Preface

This book grew out of the Clarendon lectures given in Oxford in February 1999. That it took such a long time to turn the lectures into a book, is partly because in 1999 we were still far from any serious analysis of the effects of things that cause volatility on growth (the subject of chapters 1 and 2).

In any case, finishing a book is always hard and this one might indeed be further from the ideal than most. Yet, we now feel that our six chapters convey a consistent message: namely, that in order to understand macroeconomic volatility and growth and the interplays between the two, one needs to start with a vision of an economy where there are "Schumpeterian" entrepreneurs who invest, innovate, and finance their investments through borrow­ing from a financial sector which is often underdeveloped, and which, as a result, limits them in how much financing they are able to get. It is the interplay of innovative entrepreneurs' needs for financing and the financial sector's willingness to finance them that generates the forces that we study in this book.

Thebook grew of the confluence of our intellectual histories: One of us had been working on Schumpeterian entrepreneurs for a long time, while the other was interested in imperfections in the credit market. About ten years ago we decided to join forces in order to combine the two, so as to understand better the issues that had to with volatility and growth. The first step in this project, was the material in Chapter 3, which we developed with Thomas Piketty. The material in Chapters 4 and 5 was subsequently developed with Philippe Bacchetta. Finally, the material in Chapters 1 and 2 came out of our collaboration with Marios Angeletos and Kalina Man­ova.

We also greatly benefited from the views and ideas of Bill East­erly, Robert King, Larry Jones, Patrick Francois, Huw Llyod-Ellis, Sergio Rebelo, and Klaus Walde on the effects of volatility on growth, from our previous collaboration with Gilles Saint-Paul on the opportunity cost effect of recessions, from the pioneering work of Ben Bernanke and Mark Gertler on the financial accelerator and that of Nobu Kyiotaki and John Moore on credit cycles, and from the work of Olivier Jeanne and Jean Tirole, and the seminal contri­butions of Paul Krugman, Maurice Obstfeld, and Kenneth Rogoff on financial crises and open macroeconomics.

This book would not have been if Jim Malcomson and Andrew Schuller had not initiated it by inviting us to give Clarendon lectures on volatility and growth, if Andrew Schuller had not fol­lowed up and monitored the project through all these years, and if Jennifer Wilkinson had not been so effective at supervising the editing, production, and publication process. They all deserve our deepest thanks.

Miriam Bruhn has performed a fantastic job at turning our messy notes into polished chapters and at editing and proof-reading the document at various stages up to completion.

Finally, we are grateful to our spouses, Tuli and Beatriz, for their unconditional support and immense patience through those ten years.