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Covering a wide range of topics related to current developments, Blanchard’s Macroeconomics

continues to be a seminal textbook for intermediate courses in economics. The eighth
edition has been redesigned to anticipate and clarify questions by having groups of students

Macroeconomics
work through the book section by section. It has been streamlined and divided into two
parts: a core section and two major extensions. The core focuses on short-, medium-, and

Macroeconomics
long-run effects of changes in the goods, financial, and labor markets. The extensions offer
more in-depth coverage of these topics. The two sections together allow students to see
macroeconomics as a coherent whole, not just a collection of models. This pedagogical
organization helps students make sense not only of past macroeconomic situations but also
those to unfold.

Key Features:
• A new chapter on the challenges to growth includes topics such as the relation between
EIGHTH EDITION
growth and inequality and the challenges of climate change.
• Revised sections depict how changes in the Phillips curve relation have led to changes in
monetary policy.
• New and updated Focus Boxes discuss the denomination of euro banknotes, standards
of living in Southeast Asia, the European debt crisis with a special focus on Greece,
whether robots and AI lead to mass unemployment, and public funds in France during
World War I.

EDITION
EIGHTH
• New and updated end-of-chapter exercises help students employ and develop their
analytical and evaluative skills. Quick Check exercises are easy, Dig Deeper exercises
are a bit harder, and Explore Further activities typically require either access to the
Internet or the use of a spreadsheet program.
• A new What Do Macroeconomists Do? appendix to Chapter 1 gives students an
understanding of career opportunities after specializing in macroeconomics.
Olivier Blanchard

Blanchard
Available separately for purchase with this book is MyLab Economics, the teaching
and learning platform that empowers instructors to personalize learning for each student.
When combined with trusted educational content, MyLab Economics provides countless
opportunities for practice, with the help of homework and study plan exercises based on
real-time data, that enhance a student’s experience and their comprehension.

CVR_BLAN1476_08_GE_CVR.indd 1 01/04/20 9:25 AM

Chapter 5  oods and Financial Markets: The
G Bargaining 160 • Efficiency
IS-LM Model 107
5-1 The Goods Market and the IS
Relation 108
Investment, Sales, and the
Interest Rate 108 • Determining
Output 109 • Deriving the IS
Curve 111 • Shifts of the IS
Curve 111
5-2 Financial Markets and the LM
Relation 112
Real Money, Real Income, and the
Interest Rate 112 • Deriving the LM
Curve 113
5-3 Putting the IS and LM Relations
Together 114
Fiscal Policy 114 • Monetary Policy 116
5-4 Using a Policy Mix 116
5-5 How Does the IS-LM Model Fit
the Facts? 120
Chapter 6  inancial Markets II: The
F 8-2 The Phillips Curve and Its
Extended IS-LM Model 127
6-1 Nominal versus Real Interest
Rates 128
Nominal and Real Interest Rates
in the United States since
1978 130 • Nominal and Real Interest
Rates: The Zero Lower Bound and
Deflation 131
6-2 Risk and Risk Premia 132
6-3 The Role of Financial
Intermediaries 133
The Choice of Leverage 134 • Leverage
and Lending 135
6-4 Extending the IS-LM Model 137
Financial Shocks and Policies 139
6-5 From a Housing Problem to a
Financial Crisis 140
Housing Prices and Subprime
Mortgages 140 • The Role of Financial
Intermediaries 141 • Macroeconomic
Implications 143 • Policy Responses 143
The Medium Run 151
Chapter 7 The Labor Market 153
7-1 A Tour of the Labor Market 154
The Large Flows of Workers 154
7-2 Movements in Unemployment 157
7-3 Wage Determination 159
Wages 160 • Wages, Prices, and
Unemployment 162 • The Expected
Price Level 162 • The Unemployment
Rate 163 • The Other Factors 163
7-4 Price Determination 163
7-5 The Natural Rate of
Unemployment 164
The Wage-Setting Relation 164 • The
Price-Setting Relation 165 • Equilibrium
Real Wages and Unemployment 166
7-6 Where We Go from Here 167
Appendix: Wage- and Price-Setting
Relations versus Labor Supply and Labor
Demand 172
Chapter 8  he Phillips Curve, the Natural
T
Rate of Unemployment, and
Inflation 173
8-1 Inflation, Expected Inflation, and
Unemployment 174
Mutations 176
The Original Phillips Curve 176 • The
De-anchoring of Expectations 176 • The
Re-anchoring of Expectations 179
8-3 The Phillips Curve and the Natural
Rate of Unemployment 180
8-4 A Summary and Many
Warnings 182
Variations in the Natural Rate over
Time 183 • Variations in the Natural
Unemployment Rate across
Countries 183 • High Inflation and the
Phillips Curve 184 • Deflation and the
Phillips Curve 187
Appendix: Derivation of the Relation
Between Inflation, Expected Inflation,
and Unemployment 193
Chapter 9  rom the Short to the Medium
F
Run: The IS-LM-PC Model 195
9-1 The IS-LM-PC Model 196
9-2 From the Short to the Medium
Run 199
9-3 Complications and How Things Can
Go Wrong 201
The Zero Lower Bound and Deflation
Spirals 202
9-4 Fiscal Consolidation Revisited 203
9-5 The Effects of an Increase in the Price
of Oil 207
Contents 7
 Effects on the Natural Rate of
Unemployment 208
9-6 Conclusions 210
The Short Run versus the Medium
Run 212 • Shocks and Propagation
Mechanisms 212
The Long Run 217
Chapter 10 The Facts of Growth 219
10-1 Measuring the Standard of
Living 220
10-2 Growth in Rich Countries since
1950 223
The Large Increase in the Standard
of Living since 1950 225 • The
Convergence of Output per Person 226
10-3 A Broader Look across Time
and Space 227
Looking across Two Millennia 227
• Looking across Countries 227
10-4 Thinking about Growth:
A Primer 230
The Aggregate Production
Function 230 • Returns to Scale and
Returns to Factors 231 • Output per
Worker and Capital per Worker 231
• The Sources of Growth 232
Chapter 11  aving, Capital Accumulation, and
S The Increase in Wage Inequality 289
Output 237
11-1 Interactions between Output and
Capital 238
The Effects of Capital on Output 238
• The Effects of Output on Capital
Accumulation 239 • Output
and Investment 239 • Investment and
Capital Accumulation 240
11-2 The Implications of Alternative Saving
Rates 241
Dynamics of Capital and Output 241
• The Saving Rate and Output 243
• The Saving Rate and Consumption 246
11-3 Getting a Sense of Magnitudes 248
The Effects of the Saving Rate on Steady-
State Output 250 • The Dynamic
Effects of an Increase in the Saving
Rate 251 • The US Saving Rate and the
Golden Rule 253
11-4 Physical versus Human Capital 254
Extending the Production Function 254
• Human Capital, Physical Capital, and
Output 255 • Endogenous Growth 256
8 Contents
Appendix: The Cobb-Douglas Production
Function and the Steady State 259
Chapter 12  echnological Progress and
T
Growth 261
12-1 Technological Progress and the Rate
of Growth 262
Technological Progress and the
Production Function 262 • Interactions
between Output and Capital 264
• Dynamics of Capital and
Output 266 • Back to the Effects
of the Saving Rate 267
12-2 The Determinants of Technological
Progress 268
The Fertility of the Research Process 269
• The Appropriability of Research
Results 270 • Innovation versus Imita-
tion 272
12-3 Institutions, Technological Progress,
and Growth 273
Appendix: How to Measure Technological
Progress, and the Application to China 280
Chapter 13 The Challenges of Growth 283
13-1 The Future of Technological Prog-
ress 284
13-2 Robots and Unemployment 285
13-3 Growth, Churn, and Inequality 287
• The Causes of Increased Wage
Inequality 290 • Inequality and the Top
1% 291 • Growth and Inequality 292
13-4 Climate Change and Global
Warming 295
EXTENSIONS
Expectations 303
Chapter 14  inancial Markets and
F
Expectations 305
14-1 Expected Present Discounted
Values 306
Computing Expected Present
Discounted Values 306 • A General
Formula 307 • Using Present Values:
Examples 308 • Constant Interest
Rates 308 • Constant Interest Rates
and Payments 308 • Constant Interest
Rates and Payments Forever 309 • Zero
Interest Rates 309 • Nominal versus Real
Interest Rates and Present Values 309
 14-2 Bond Prices and Bond Yields 310
Bond Prices as Present Values 312
• Arbitrage and Bond Prices 313 • From
Bond Prices to Bond Yields 314
• Reintroducing Risk 315 • Interpreting
the Yield Curve 316
14-3 The Stock Market and Movements in
Stock Prices 317
Stock Prices as Present Values 318 • The
Stock Market and Economic Activity 320
• A Monetary Expansion and the Stock
Market 321 • An Increase in Consumer
Spending and the Stock Market 322
14-4 Risk, Bubbles, Fads, and Asset
Prices 323
Stock Prices and Risk 324 • Asset
Prices, Fundamentals, and Bubbles 324
Appendix: Deriving the Expected Present
Discounted Value Using Real or Nominal
Interest Rates 330
Chapter 15 Expectations, Consumption,
and Investment 331
15-1 Consumption 332
The Very Foresighted Consumer 332
• An Example 333 • Toward a More
Realistic Description 334 • Putting
Things Together: Current Income,
Expectations, and Consumption 337
15-2 Investment 338
Investment and Expectations
of Profit 339 • Depreciation 339
• The Present Value of Expected
Profits 339 • The Investment Deci-
sion 340 • A Convenient Special
Case 342 • Current versus Expected
Profit 342 • Profit and Sales 344
15-3 The Volatility of Consumption and
Investment 346
Appendix: Derivation of the Expected
Present Value of Profits under Static
Expectations 351
Chapter 16  xpectations, Output, and
E Output 403
Policy 353
16-1 Expectations and Decisions: Taking
Stock 354
Expectations, Consumption, and Invest-
ment Decisions 354 • Expectations and
the IS Relation 354
16-2 Monetary Policy, Expectations, and
Output 357
Monetary Policy Revisited 357
16-3 Deficit Reduction, Expectations, and
Output 360
The Role of Expectations about the
Future 361 • Back to the Current
Period 361
The Open Economy 371
Chapter 17  penness in Goods and Financial
O
Markets 373
17-1 Openness in Goods Markets 374
Exports and Imports 374 • The Choice
between Domestic Goods and For-
eign Goods 376 • Nominal Exchange
Rates 376 • From Nominal to Real
Exchange Rates 377 • From Bilateral to
Multilateral Exchange Rates 381
17-2 Openness in Financial Markets 382
The Balance of Payments 383 • The
Choice between Domestic and Foreign
Assets 385 • Interest Rates and
Exchange Rates 387
17-3 Conclusions and a Look Ahead 389
Chapter 18  he Goods Market in an Open
T
Economy 393
18-1 The IS Relation in the Open
Economy 394
The Demand for Domestic
Goods 394 • The Determinants of C,
I, and G 394 • The Determinants of
Imports 395 • The Determinants of
Exports 395 • Putting the Components
Together 395
18-2 Equilibrium Output and the Trade
Balance 397
18-3 Increases in Demand—Domestic or
Foreign 398
Increases in Domestic Demand 398
• Increases in Foreign Demand 400
• Fiscal Policy Revisited 401
18-4 Depreciation, the Trade Balance, and
Depreciation and the Trade Balance: the
Marshall-Lerner Condition 404 • The
Effects of a Real Depreciation 404
• Combining Exchange Rate
and Fiscal Policies 405
18-5 Saving, Investment, and the Current
Account Balance 408
Appendix: Derivation of the Marshall-Lerner
Condition 413
Contents 9
Chapter 19  utput, the Interest Rate, and the
O Back to Policy 459
Exchange Rate 415
19-1 Equilibrium in the Goods
Market 416
19-2 Equilibrium in Financial
Markets 417
Domestic Bonds versus Foreign
Bonds 417
19-3 Putting Goods and Financial Markets
Together 420
19-4 The Effects of Policy in an Open
Economy 422
The Effects of Monetary Policy in an Open
Economy 422 • The Effects of Fiscal
Policy in an Open Economy 423
19-5 Fixed Exchange Rates 427
Pegs, Crawling Pegs, Bands, the
EMS, and the Euro 427 • Monetary
Policy When the Exchange Rate Is
Fixed 428 • Fiscal Policy When the
Exchange Rate Is Fixed 429
Appendix: Fixed Exchange Rates, Interest
Rates, and Capital Mobility 434
Chapter 20 Exchange Rate Regimes 437
20-1 The Medium Run 438
The IS Relation under Fixed
Exchange Rates 439 • Equilibrium
in the Short and the Medium
Run 439 • The Case for and against
a Devaluation 440
20-2 Exchange Rate Crises under Fixed
Exchange Rates 442
20-3 Exchange Rate Movements under
Flexible Exchange Rates 445
Exchange Rates and the Current
Account 446 • Exchange Rates
and Current and Future Interest
Rates 447 • Exchange Rate
Volatility 447
20-4 Choosing between Exchange Rate
Regimes 448
Common Currency Areas 449 • Hard
Pegs, Currency Boards, and
Dollarization 451
Appendix 1: Deriving the IS
Relation under Fixed Exchange
Rates 457
Appendix 2: The Real Exchange Rate
and Domestic and Foreign Real Interest
Rates 457
10 Contents
Chapter 21  hould Policymakers Be
S
Restrained? 461
21-1 Uncertainty and Policy 462
How Much Do Macroeconomists
Actually Know? 462 • Should
Uncertainty Lead Policymakers to
Do Less? 464 • Uncertainty and
Restraints on Policymakers 464
21-2 Expectations and Policy 465
Hostage Takings and Negotia-
tions 466 • Inflation and Unemploy-
ment Revisited 466 • Establishing
Credibility 467 • Time Consistency and
Restraints on Policymakers 469
21-3 Politics and Policy 469
Games between Policymakers and
Voters 470 • Games between Policy-
makers 471 • Politics and Fiscal Re-
straints 472
Chapter 22 Fiscal Policy: A Summing Up 479
22-1 What We Have Learned 480
22-2 The Government Budget
Constraint: Deficits, Debt,
Spending, and Taxes 481
The Arithmetic of Deficits and
Debt 481 • Current versus Future
Taxes 483 • Full Repayment in
Year 2 483 • Full Repayment in
Year t 484 • Debt Stabilization
in Year 2 485 • The Evolution of the
Debt-to-GDP Ratio 486
22-3 Ricardian Equivalence, Cyclical
Adjusted Deficits, and War
Finance 488
Ricardian Equivalence 488 • Deficits,
Output Stabilization, and the Cyclically
Adjusted Deficit 489 • Wars and
Deficits 490
22-4 The Dangers of High Debt 492
High Debt, Default Risk, and Vicious
Cycles 492 • Debt Default 494 • Money
Finance 494
22-5 The Challenges Facing US Fiscal Policy
Today 497
Chapter 23  onetary Policy: A Summing
M
Up 503
23-1 What We Have Learned 504
23-2 From Money Targeting to Inflation
Targeting 505
 Money Targeting 505 • Inflation Target- The Three Implications of Rational
ing 507 • The Interest Rate Rule 508 Expectations 530 • The Integration of
23-3 The Optimal Inflation Rate 509 Rational Expectations 531

The Costs of Inflation 509 • The 24-4 Developments in Macroeconomics up

Benefits of Inflation 512 • The to the 2009 Crisis 532
Optimal Inflation Rate: The State of the New Classical Economics and Real
Debate 513 Business Cycle Theory 533 • New
23-4 Unconventional Monetary Keynesian Economics 533 • New
Policy 514 Growth Theory 534 • Toward an
Integration 535
Monetary Policy since the End of the
Liquidity Trap 515 24-5 First Lessons for Macroeconomics
after the Crisis 536
23-5 Monetary Policy and Financial
Stability 516
Appendix 1 
An Introduction to the
Liquidity Provision and Lender of Last
Resort 517 • Macroprudential
National Income and Product
Tools 517 Accounts A-1
Appendix 2 A Math Refresher A-7
Chapter 24  pilogue: The Story of
E
Macroeconomics 525 Appendix 3 
An Introduction to
24-1 Keynes and the Great Depression 526 Econometrics A-12
24-2 The Neoclassical Synthesis 526 Glossary G-1
Progress on All Fronts 527 • Keynesians Index I-1
versus Monetarists 528
Credits C-1
24-3 The Rational Expectations
Critique 529 Symbols Used in This Book   S-1

Contents 11
Focus Boxes

The Euro: A Short History 28 Inequality and the Gini Coefficient 293
Real GDP, Technological Progress, and the Price of The Vocabulary of Bond Markets 312
­Computers 45 Making (Some) Sense of (Apparent) Nonsense: Why the Stock
Unemployment and Happiness 48 Market Moved Yesterday, and Other Stories 323
The Lehman Bankruptcy, Fears of Another Great Depression, From Tulipmania in 17th-Century Holland to Japan, and the
and Shifts in the Consumption Function 77 Internet Bubble 324
The Paradox of Saving 81 The Increase in Housing Prices during the First Half of the
Semantic Traps: Money, Income, and Wealth 89 2000s: Fundamentals or Bubble? 326
The Denomination of Euro Banknotes 91 Understanding Aggregate Consumption Patterns: The Eurosystem
Household Finance and Consumption Survey 333
Will Bitcoins Replace Dollars? 100
How Much Do Expectations Matter in Argentina? 336
Will Japan Finally Overcome the Liquidity Trap? 102
Investment and the Stock Market 341
The European Sovereign Debt Crisis with a Special Focus on
Greece during 2010–2013 118 Profitability versus Cash Flow 344
Deficit Reduction: Good or Bad for Investment? 120 Rational Expectations 359
Bank Runs 136 Can a Budget Deficit Reduction Lead to an Output Expansion?
The Case of South Africa 363
The Australian Monthly Population Survey 156
Uncertainty and Fluctuations 366
From Henry Ford to Jeff Bezos 161
Can Exports Exceed GDP? 376
Theory ahead of Facts: Milton Friedman and Edmund Phelps 181
GDP versus GNP: The Example of Kuwait 386
Changes in the US Natural Rate of Unemployment since
1990 184 Buying Brazilian Bonds 388
What Explains European Unemployment? 185 The G20 and the 2009 Fiscal Stimulus 402
Okun’s Law across Time and Countries 198 Ethiopia’s Domestic Growth and External Imbalances 406
Deflation in the Great Depression 204 Capital Flows, Sudden Stops, and the Limits to the Interest
Parity Condition 418
Japan’s Deflationary Trap 205
China and the Mundell-Fleming Trilemma: The Renminbi
Plummeting Oil Prices: A Global Perspective 211 ­Internationalization for an Independent Monetary Policy 425
The Construction of PPP Numbers 222 US Trade Deficits and Trump Administration Trade Tariffs 426
Does Money Buy Happiness? 224 German Reunification, Interest Rates, and the EMS 430
Growth and Changes in Standards of Living in Southeast Asia 228 The Return of Britain to the Gold Standard: Keynes versus
Capital Accumulation and Growth in France in the Aftermath of Churchill 441
World War II 244 The 1992 EMS Crisis 444
Social Security, Saving, and Capital Accumulation in the United Lessons from Argentina’s Currency Board 452
States 249
Was Alan Blinder Wrong in Speaking the Truth? 469
Nudging US Households to Save More 254
Euro Area Fiscal Rules: A Short History 474
Foreign Direct Investment, Technological Change, and
­Economic Growth 270 Inflation Accounting and the Measurement of Deficits 482
Management Practices: Another Dimension of Technological How Countries Decreased Their Debt Ratios after World
Progress 272 War II 487
The Importance of Institutions: North Korea and South ­Korea 274 Deficits and the Crowding Out of Private Investment: France
during Word War I 491
What Lies Behind Chinese Growth? 276
Money Financing and Hyperinflations 496
Will Robot and AI Mean Job Destruction? 288
Money Illusion 511
The Role of Technology in the Decrease in Wage Inequality in
Latin America in the 2000s 291 LTV Ratios and Housing Price Increases from 2000 to 2007 519

12
Preface
I had two main goals in writing this book:
■■ To make close contact with current macroeconomic events.
What makes macroeconomics exciting is the light it sheds
on what is happening around the world, from the major
economic crisis which engulfed the world in the late 2000s,
to monetary policy in the United States, to the problems of
the Euro area, to growth in China. These events—and many
more—are described in the book, not in footnotes, but in the
text or in detailed boxes. Each box shows how you can use
what you have learned to get an understanding of these
events. My belief is that these boxes not only convey the life
of macroeconomics, but also reinforce the lessons from the
models, making them more concrete and easier to grasp.
■■ To provide an integrated view of macroeconomics. The
book is built on one underlying model, a model that
draws the implications of equilibrium conditions in three
sets of markets: the goods market, the financial markets,
and the labor market. Depending on the issue at hand,
the parts of the model relevant to the issue are developed
in more detail while the other parts are simplified or lurk
in the background. But the underlying model is always
the same. This way, you will see macroeconomics as a
coherent whole, not a collection of models. And you will
be able to make sense not only of past macroeconomic
events but also of those that unfold in the future.
Solving Learning and Teaching
Challenges
Flexible Organization
The book is organized around two central parts: a core,
and a set of two major extensions. An introduction pre-
cedes the core. The two extensions are followed by a review
of the role of policy. The book ends with an epilogue. The
flowchart at the beginning of this book makes it easy to see
how the chapters are organized and fit within the book’s
overall structure.
■■ Chapters 1 and 2 introduce the basic facts and issues of
macroeconomics. Chapter 1 takes you on an economic
tour of the world, from the Euro area, to the United States,
and to China. Some instructors will prefer to cover Chap-
ter 1 later, perhaps after Chapter 2, which introduces basic
concepts, articulates the notions of short run, medium run,
and long run, and gives the reader a quick tour of the book.
While Chapter 2 gives the basics of national income
accounting, I have put a detailed treatment of national
income accounts in Appendix 1 at the end of the book.
This decreases the burden on the beginning reader and
allows for a more thorough treatment in the appendix.
■■ Chapters 3 through 13 constitute the core.
Chapters 3 through 6 focus on the short run. Chapters 3
to 5 characterize equilibrium in the goods market and in
the financial markets, and derive the basic model used to
study short-run movements in output, the IS-LM model.
Chapter 6 extends the basic IS-LM model to reflect the role
of the financial system. It then uses it to describe what
happened during the initial phase of the financial crisis.
Chapters 7 through 9 focus on the medium run. Chap-
ter 7 focuses on equilibrium in the labor market and in-
troduces the notion of the natural rate of ­unemployment.
Chapter 8 derives and discusses the relation between
­unemployment and inflation, known as the Phillips curve.
Chapter 9 develops the IS-LM-PC (PC for P ­ hillips curve)
model which takes into account e­ quilibrium in the goods
market, in the financial markets, and in the labor market.
It shows how this model can be used to understand move-
ments in activity and movements in inflation, both in the
short and in the medium run.
Chapters 10 through 13 focus on the long run. Chapter 10
describes the facts, showing the evolution of output across
countries and over long periods of time. Chapters 11 and 12
develop a model of growth and describe how capital accu-
mulation and technological progress determine growth.
Chapter 13, which is new, focuses on the challenges to
growth, from inequality to climate change.
■■ Chapters 14 through 20 cover the two major extensions.
Chapters 14 through 16 focus on the role of expectations
in the short run and in the medium run. Expectations play
13
 a major role in most economic decisions and, by implica-
tion, play a major role in the determination of output.
Chapters 17 through 20 examine the implications of
openness of modern economies. Chapter 20 looks at the
implications of different exchange rate regimes, from
flexible exchange rates, to fixed exchange rates, currency
boards, and dollarization.
■■ Chapters 21 through 23 return to macroeconomic
policy. Although most of the first 20 chapters constant-
ly discuss macroeconomic policy in one form or ­another,
the purpose of Chapters 21 through 23 is to tie the
threads together. Chapter 21 looks at the role and the
limits of macroeconomic policy in general. Chapters 22
and 23 review fiscal and monetary policy. Some instruc-
tors may want to use parts of these chapters earlier. For
example, it is easy to move forward the discussion of the
government budget constraint in Chapter 22 or the dis-
cussion of inflation targeting in Chapter 23.
■■ Chapter 24 serves as an epilogue; it puts macroeconom-
ics in historical perspective by showing the evolution of
macroeconomics over the last 80 years, discussing cur-
rent directions of research, and the lessons of the crisis
for macroeconomics.
Alternative Course Outlines
Within the book’s broad organization, there is plenty of op-
portunity for alternative course organizations. I have made
the chapters shorter than is standard in textbooks, and, in
my experience, most chapters can be covered in an hour and
a half. A few (Chapters 5 and 9 for example) might require
two lectures to sink in.
■■ Short courses (15 lectures or less)
A short course can be organized around the two intro-
ductory chapters and the core (Chapter 13 can be ex-
cluded at no cost in continuity). Informal presentations
of one or two of the extensions, based, for example, on
Chapter 16 for expectations (which can be taught as a
standalone) and on Chapter 17 for the open economy,
can then follow, for a total of 14 lectures.
A short course might leave out the study of growth
(the long run). In this case, the course can be orga-
nized around the introductory chapters and Chapters 3
through 9 in the core; this gives a total of 9 lectures, leav-
ing enough time to cover, for example, Chapter 16 on
expectations and Chapters 17 through 19 on the open
economy, for a total of 13 lectures.
14 Preface
■■ Longer courses (20 to 25 lectures)
A full semester course gives more than enough time to
cover the core, plus one or both of the two extensions, and
the review of policy. The extensions assume knowledge of
the core, but are otherwise mostly self-contained. Given the
choice, the order in which they are best taught is probably
the order in which they are presented in the book. Having
studied the role of expectations first helps students to un-
derstand the interest parity condition and the nature of ex-
change rate crises.
Innovative Features
I have made sure never to present a theoretical result with-
out relating it to the real world. In addition to discussions
of facts in the text itself, I have written many Focus boxes,
which discuss particular macroeconomic events or facts
from around the world. Many of those are new to this
­edition.
I have tried to re-create some of the student–teacher
interactions that take place in the classroom by the use of
margin notes, which run parallel to the text. The margin
notes create a dialogue with the reader and, in so doing,
smooth the more difficult passages and give a deeper un-
derstanding of the concepts and the results derived along
the way.
For students who want to explore macroeconomics fur-
ther, I have introduced the following two features:
■■ Short appendixes to some chapters, which expand on
points made within the chapter.
■■ A ‘Further Readings’ section at the end of most chapters,
indicating where to find more information, including key
Internet addresses.
Each chapter starts with a one- or two-sentence summary
at the end of the introduction, and ends with three ways
of making sure that the material in the chapter has been
digested:
■■ A summary of the chapter’s main points.
■■ A list of key terms.
■■ A series of end-of-chapter exercises. “Quick Check”
exercises are easy. “Dig Deeper” exercises are a bit
harder, and “Explore Further” activities typically re-
quire either access to the Internet or use of a spread-
sheet program.
■■ A list of symbols at the end of the book makes it easy to
recall the meaning of the symbols used in the text.
What’s New in This Edition
A new Chapter 13 on the challenges to growth. Topics
include whether the introduction of robots will lead to mass
unemployment, the relation between growth and inequality,
and the challenges of climate change.
A revised Chapter 8 on the Phillips curve, reflecting a
major change in the US economy. The Phillips curve is now
a relation between inflation and unemployment rather than
between the change in inflation and unemployment.
A revised Chapter 9 showing how the changes in the
Phillips curve relation have led to changes in monetary
policy.
A new appendix in Chapter 1, ‘What Do Macroecono-
mists Do?’, which will give you a sense of what careers you
may pursue if you were to specialize in macroeconomics.
Updated Focus Boxes include:
■■ NEW! Will Bitcoins Replace Dollars? (Chapter 4)
■■ From Henry Ford to Jeff Bezos (Chapter 7)
■■ NEW! Growth and Changes in Standards of Living in
Southeast Asia (Chapter 10)
■■ NEW! Nudging US Households to Save More (Chapter 11)
■■ What Lies Behind Chinese Growth? (Chapter 12)
■■ Uncertainty and Fluctuations (Chapter 16)
■■ NEW! China and the Mundell-Fleming Trilemma
(Chapter 19)
Acknowledgments and Thanks
This book owes much to many. I thank Adam Ashcraft,
Peter Berger, Peter Benczur, Efe Cakarel, Francesco Furno,
Harry Gakidis, Ava Hong, David Hwang, Kevin Nazemi, Da-
vid Reichsfeld, Jianlong Tan, Stacy Tevlin, Gaurav Tewari,
Corissa Thompson, John Simon, and Jeromin Zettelmeyer
for their research assistance over the years. I thank the gen-
erations of students in 14.02 at MIT who have freely shared
their reactions to the book over the years.
I have benefited from comments from many colleagues
and friends. Among them are John Abell, Daron Acemoglu,
Tobias Adrian, Chuangxin An, Roland Benabou, Samuel
Bentolila, and Juan Jimeno (who have adapted the book for
a Spanish edition); Francois Blanchard, Roger Brinner, Ri-
cardo Caballero, Wendy Carlin, Martina Copelman, Henry
Chappell, Ludwig Chincarini, and Daniel Cohen (who has
adapted the book for a French edition); Larry Christiano, Bud
Collier, Andres Conesa, Peter Diamond, Martin Eichenbaum,
Gary Fethke, David Findlay, Francesco Giavazzi, and Alessia
Amighini (who adapted the book first for an Italian edition,
and then for a European edition); Andrew Healy, Steinar
Holden, and Gerhard Illing (who has adapted the book for
a German edition); Yannis Ioannides, Jose Isidoro Garcia de
Paso Gomez, Per Krusell (who, with others, has adapted the
book for a Swedish edition), Angelo Melino (who adapted the
book for a Canadian edition), P. N. Junankar, Sam Keeley,
Bernd Kuemmel, Paul Krugman, Antoine Magnier, Peter
Montiel, Bill Nordhaus, Tom Michl, Dick Oppermann, Atha-
nasios Orphanides, and Daniel Pirez Enri (who has adapted
the book for a Latin American edition); Michael Plouffe,
Zoran Popovic, Jim Poterba, and Jeff Sheen (who has adapted
the book for an Australasian edition); Ronald Schettkat, and
Watanabe Shinichi (who has adapted the book for a Japanese
edition); Francesco Sisci, Brian Simboli, Changyong Rhee,
Julio Rotemberg, Robert Solow, Andre Watteyne, and Mi-
chael Woodford. Thanks also go to David Johnson who wrote
the end-of-chapter exercises for this edition.
I want to thank the reviewers that provided feedback for
this new edition:
■■ Sahar Bahmani, University of Wisconsin Parkside
■■ Robert Blecker, American University
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■■ Satyajit Ghosh, University of Scranton
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■■ Yu Peng Lin, University of Detroit-Mercy
I have also benefited from comments from many readers,
­reviewers, and class testers. Among them:
■■ John Abell, Randolph, Macon Woman’s College
■■ Carol Adams, Cabrillo College
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Preface 15
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■■ Dale DeBoer, University of Colorado at Colorado Springs ■■ Louis Johnston, College of St. Benedict
■■ Adrian de Leon-Arias, Universidad de Guadalajara ■■ Barry Jones, SUNY Binghamton
■■ Brad DeLong, UC Berkeley ■■ Fred Joutz, George Washington University
■■ Firat Demir, University of Oklahoma ■■ Cem Karayalcin, Florida International University
■■ Wouter Denhaan, UC San Diego ■■ Okan Kavuncu, University of California
■■ John Dodge, King College ■■ Miles Kimball, University of Michigan
■■ F. Trenery Dolbear, Brandeis University ■■ Paul King, Denison University
■■ Patrick Dolenc, Keene State College ■■ Michael Klein, Tufts University
■■ Brian Donhauser, University of Washington ■■ Mark Klinedinst, University of Southern Mississippi
■■ Michael Donihue, Colby College ■■ Shawn Knabb, Western Washington University
■■ Vincent Dropsy, California State University ■■ Todd Knoop, Cornell College
■■ Justin Dubas, St. Norbert College ■■ Paul Koch, Olivet Nazarene University
■■ Amitava Dutt, University of Notre Dame ■■ Ng Beoy Kui, Nanyang Technical University, Singapore
■■ John Edgren, Eastern Michigan University ■■ Leonard Lardaro, University of Rhode Island
■■ Eric Elder, Northwestern College ■■ James Leady, University of Notre Dame
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■■ Scott Fullwiler, Wartburg College ■■ Mathias Lutz, University of Sussex
■■ Julie Gallaway, University of Missouri–Rolla ■■ Bernard Malamud, University of Nevada, Las Vegas
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16 Preface
■■ Emiliano Pagnotta, Northwestern University ■■ Chi-Wa Yuen, Hong Kong University of Science and ­Technology
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■■ Andrew Parkes, Mesa State College ■■ Christian Zimmermann, University of Connecticut
■■ Allen Parkman, University of Mexico
They have helped me beyond the call of duty, and each has
■■ Jim Peach, New Mexico State University made a difference to the book.
■■ Gavin Peebles, National University of Singapore
I have many people to thank for this edition. Cameron
■■ Michael Quinn, Bentley College Fletcher was a totally reliable proofreader and checker. At
■■ Charles Revier, Colorado State University Pearson, I want to thank Chris DeJohn, content strategy
■■ Jack Richards, Portland State University manager; Samantha Lewis, product manager; Shweta Jain,
■■ Raymond Ring, University of South Dakota content producer; Nayke Heine, product marketer; and
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■■ Malcolm Robinson, Thomas Moore College Denise Forlow, Gowthaman Sadhanandham and his team,
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■■ Kehar Sangha, Old Dominion University Finally, I want to single out Steve Rigolosi, the editor
■■ Ahmad Saranjam, Bridgewater State College for the first edition; and Michael Elia, the editor for the sec-
■■ Carol Scotese, Virginia Commonwealth University ond and third editions. Steve forced me to clarify. Michael
■■ John Seater, North Carolina State University forced me to simplify. Together, they made all the difference
to the process and to the book. I thank them deeply. I have
■■ Peter Sephton, University of New Brunswick
also benefited from often-stimulating suggestions from my
■■ Ruth Shen, San Francisco State University
daughters, Serena, Giulia, and Marie: I did not, however,
■■ Kwanho Shin, University of Kansas
follow all of them. At home, I continue to thank Noelle for
■■ Tara Sinclair, The George Washington University preserving my sanity.
■■ Aaron Smallwood, University of Texas, Arlington
■■ David Sollars, Auburn University Olivier Blanchard
■■ Liliana Stern, Auburn University Washington,
■■ Edward Stuart, Northeastern Illinois University November 2019
■■ Abdulhanid Sukaar, Cameron University
■■ Peter Summers, Texas Tech University
■■ Mark Thomas, University of Maryland Baltimore County Global Edition ­Acknowledgments
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■■ Ip Wing Yu, University of Hong Kong

Preface 17
About the Author

A citizen of France, Olivier Blanchard has spent most of his professional life in Cambridge,
U.S.A. After obtaining his Ph.D. in economics at the Massachusetts Institute of Technology
in 1977, he taught at Harvard University, returning to MIT in 1982. He was chair of the
economics department from 1998 to 2003. In 2008, he took a leave of absence to be the Eco-
nomic Counsellor and Director of the Research Department of the International Monetary
Fund. Since October 2015, he has been the Fred Bergsten Senior Fellow at the Peterson Insti-
tute for International Economics, in Washington. He also remains Robert M. Solow Professor
of Economics emeritus at MIT.
He has worked on a wide set of macroeconomic issues, from the role of monetary policy,
to the nature of speculative bubbles, to the nature of the labor market and the determinants
of unemployment, to transition in former communist countries, and to forces behind the re-
cent global crisis. In the process, he has worked with numerous countries and international
organizations. He is the author of many books and articles, including a graduate level text-
book with Stanley Fischer.
He is a past editor of the Quarterly Journal of Economics, of the NBER Macroeconomics
Annual, and founding editor of the AEJ Macroeconomics. He is a fellow and past council
member of the Econometric Society, a past president of the American Economic Association,
and a member of the American Academy of Sciences.

18
Introduction

THE CORE
The first two chapters of this book introduce you to the
issues and the approach of macroeconomics.
Chapter 1

Chapter 1 takes you on a macroeconomic tour of the world. It starts with a look at
the economic crisis that has shaped the world economy since the late 2000s. The tour
then stops at each of the world’s major economic powers: the euro area, the United
States, and China.
Chapter 2

Chapter 2 takes you on a tour of the book. It defines the three central variables of
macroeconomics: output, unemployment, and inflation. It then introduces the three
time periods around which the book is organized: the short run, the medium run, and
the long run.

 19
This page intentionally left blank
A Tour of the World 1
W
hat is macroeconomics? The best way to answer is not to give you a formal
definition, but rather to take you on an economic tour of the world, to describe
both the main economic evolutions and the issues that keep macroeconomists
and macroeconomic policymakers awake at night.
At the time of this writing (the start of 2019), policymakers are sleeping better than they
did a decade ago. In 2008, the world economy entered a major macroeconomic crisis, the
deepest since the Great Depression. World output growth, which typically runs at 4% to 5%
a year, was negative in 2009. Since then, growth has turned positive, and the world economy
has largely recovered. But the crisis, now known as the Great Financial Crisis, has left sev-
eral scars, and some worries remain.
My goal in this chapter is to give you a sense of these events and of some of the mac-
roeconomic issues confronting different countries today. I shall start with an overview of the
crisis, and then focus on the three main economic powers of the world: the euro area, the
United States, and China.

Section 1-1 looks at the crisis.

Section 1-2 looks at the euro area.

Section 1-3 looks at the United States.

Section 1-4 looks at China.

Section 1-5 concludes and looks ahead.

Read this chapter as you would read an article in a newspaper. Do not worry about the
exact meaning of the words or about understanding the arguments in detail: The words will
be defined, and the arguments will be developed in later chapters. Think of this chapter as
background, intended to introduce you to the issues of macroeconomics. If you enjoy read-
ing this chapter, you will probably enjoy reading this book. Indeed, once you have read it, b If you do not, please accept
come back to this chapter; see where you stand on the issues, and judge how much prog- my apologies. . .
ress you have made in your study of macroeconomics.

If you remember one basic message from this chapter, it should be: Economies,
like people, get sick—high unemployment, recessions, financial crises, low growth.
Macroeconomics is about why it happens, and what can be done about it.

21
 1-1 THE CRISIS
Figure 1-1 shows output growth rates for the world economy, for advanced economies,
and for emerging and developing economies, separately, since 2000. As you can see, from
2000 to 2007 the world economy had a sustained expansion. Annual average world out-
put growth was 4.5%, with advanced economies (the group of 30 or so richest countries
in the world) growing at 2.7% per year, and emerging and developing economies grow-
ing at an even faster 6.6% per year.
In 2007, however, signs that the expansion might be coming to an end started to
appear. US housing prices, which had doubled since 2000, started declining. Economists
started to worry. Optimists believed that, although lower housing prices might lead to
lower housing construction and to lower spending by consumers, the Federal Reserve
Bank (the US central bank, called the Fed for short) could lower interest rates to stimu-
late demand and avoid a recession. Pessimists believed that the decrease in interest rates
might not be enough to sustain demand and that the United States might go through a
short recession.
Even the pessimists turned out not to be pessimistic enough. As housing prices
continued to decline, it became clear that the problems were deeper. Many of the mort-
gages that had been sold during the previous expansion were of poor quality. Many of
the borrowers had taken too large a loan and were increasingly unable to make the
“Banks” here actually monthly payments. And, with declining housing prices, the value of their mortgage
means “banks and other often exceeded the price of the house, giving them an incentive to default. This was
financial institutions.” But
this is too long to write and I
not the worst of it: The banks that had issued the mortgages had often bundled and
do not want to go into these packaged them together into new securities and then sold these securities to other
complications in Chapter 1. c banks and investors. These securities had then often been repackaged into yet new
securities, and so on. The result is that many banks, instead of holding the mortgages
themselves, held these securities, which were so complex that their value was nearly
impossible to assess.
This complexity and opaqueness turned a housing price decline into a major finan-
cial crisis, a development that few economists had anticipated. Not knowing the quality
of the assets that other banks had on their balance sheets, banks became reluctant to
lend to each other for fear that the bank to which they lent might not be able to repay.
Unable to borrow, and with assets of uncertain value, many banks found themselves
in trouble. On September 15, 2008, a major bank, Lehman Brothers, went bankrupt.

Figure 1-1 10
Output Growth Rates for
Emerging and developing economies
the World Economy, for 8
Advanced Economies,
and for Emerging and 6
Developing Economies,
2000–2018 4
Percent

Source: IMF, World Economic 2

Outlook Database, July 2018.
NGDP_RPCH.A. Advanced economies World
0

22

24
00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

16

17

18
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

22 Introduction The Core

 1.6
Figure 1-2
Stock Prices in the
1.4 United States, the Euro
Emerging economies Area, and Emerging
Index, equal to 1.0 in January 2007

1.2 Economies, 2007–2010

Source: Haver Analytics

1.0 United States USA (S111ACD), Eurogroup
(S023ACD), all emerging markets
0.8 (S200ACD), all monthly averages.

0.6

Euro area
0.4

0.2

0.0
1

1
–0

–0

–0

–0

–0

–0

–0

–0

–1
07

07

08

08

09

09

10

10

10
20

20

20

20

20

20

20

20

20
The effects were dramatic. Because the links between Lehman and other banks were so b I started my job as
opaque, many other banks appeared at risk of going bankrupt as well. For a few weeks, it chief economist of the
International Monetary
looked as if the whole financial system might collapse. Fund two weeks before the
This financial crisis quickly turned into a major economic crisis. Stock prices col- Lehman bankruptcy. I faced
lapsed. Figure 1-2 plots stock price indexes for the United States, the euro area, and a steep learning curve.
emerging economies from the beginning of 2007 to the end of 2010. The indexes are
set equal to 1 in January 2007. Note that, by the end of 2008, stock prices had lost half
or more of their value from their previous peak. Note also that, even though the crisis
originated in the United States, European and emerging market stock prices decreased by
as much as their US counterparts; I shall return to this later.
Hit by the decrease in housing prices and the collapse in stock prices, and worried
that this might be the beginning of another Great Depression, people sharply cut their
consumption. Worried about sales and uncertain about the future, firms sharply cut
back their investment. With housing prices dropping and many vacant homes on the
market, very few new homes were built. Despite strong actions by the Fed, which cut
interest rates all the way down to zero, and by the US government, which cut taxes and
increased spending, demand decreased, and so did output. In the third quarter of 2008,
US output growth turned negative and remained so in 2009.
One might have hoped that the crisis would remain largely contained in the United
States. As Figures 1-1 and 1-2 both show, this was not the case. The US crisis quickly
became a world crisis. Other countries were affected through two channels.
The first channel was trade. As US consumers and firms cut spending, part of the
decrease fell on imports of foreign goods. Looking at it from the viewpoint of countries
exporting to the United States, their exports went down, and so, in turn, did their output.
The second channel was finance. US banks, badly needing funds in the United States,
repatriated funds from other countries, creating problems for banks in those countries
as well. As those banks got in trouble, lending came to a halt, leading to a decrease in
spending and in output. Also, in several European countries, governments had accumu-
lated high levels of debt and were now running large deficits. Investors began to worry
about whether debt could be repaid and asked for much higher interest rates. Confronted

Chapter 1 A Tour of the World 23

 with those high interest rates, governments drastically reduced their deficits, through a
combination of lower spending and higher taxes. This led in turn to a further decrease
in demand and in output. In Europe, the decline in output was so bad that this aspect
of the crisis acquired its own name, the Euro Crisis. In short, the US recession turned
into a world recession. By 2009, average growth in advanced economies was −3.4%, by
far the lowest annual growth rate since the Great Depression. Growth in emerging and
developing economies remained positive but was 3.5 percentage points lower than the
2000–2007 average.
Thanks to strong monetary and fiscal policies and to the gradual repair of the
financial system, economies turned around and started recovering. As you can see
from Figure 1-1, growth in advanced countries turned positive in 2010 and has re-
mained positive since. In some advanced countries, most notably the United States,
unemployment is now very low. The euro area, however, is still struggling; growth is
positive, but unemployment remains high. Growth in emerging and developing econ-
omies has also recovered, but, as you can see from Figure 1-1, it is lower than it was
before the crisis.
Now that I have set the stage, let me take you on a tour of the three main economic
powers in the world: the United States, the euro area, and China.

1-2 THE EURO AREA

In 1957, six European countries decided to form a common European market—an eco-
Until a few years ago,
nomic zone where people, goods, and services could move freely. Over time, 22 more
the official name was the
European Community, or countries joined, bringing the total to 28. This group is now known as the European
EC. You may still encounter Union (EU) and its scope extends beyond just economic issues. In 2016, the United
that name. EC now stands Kingdom held a referendum in which the government was given the mandate to exit
for European Commission, the Union. At this juncture, the number of EU member countries have come down to 27.
the executive arm of the c
The United Kingdom withdrew from the EU on January 31, 2020.
European Union.
In 1999, the EU decided to go a step further and started the process of replacing
national currencies with one common currency, called the euro. Only 11 countries par-
The area also goes by the ticipated at the start; since then, 8 more have joined. Nineteen countries now belong to
names of “Eurozone” or this common currency area, known as the euro area.
c
“Euroland.” The first sounds As you can see from the numbers in Figure 1-3, the euro area is a strong economic
too technocratic, and the
second reminds one of
power. At the current exchange rate between the euro and the dollar, its output is equal
Disneyland. I shall avoid to two-thirds of US output. (The EU as a whole has an output equal to 90% of that of the
them. United States.)
Table 1-1 gives the numbers for output growth, the unemployment rate, and the
inflation rate for 1990–2007, 2008–2009, 2010–2017, and 2018. Just as in the
United States, the acute phase of the crisis, 2008–2009, was characterized by negative
growth. Whereas the United States recovered, growth in the euro area remained anemic.
Indeed, while this is not shown in the table, growth was negative in both 2012 and 2013.
Growth has now increased, reaching 2% in 2018, but the unemployment rate remains
high, at 8.3%. Inflation remains too low, below the 2% target of the European Central
Bank (ECB).
The euro area faces two main issues today. The first is how to reduce unemployment.
Second is whether and how it can function efficiently as a common currency area. Let’s
look at the two issues in turn.

24 Introduction The Core

Another random document with
no related content on Scribd:
concerning them were afloat, in spite of the virtues which adorned
them.
We are not sure how old Doña Elena was, and it was not an easy
thing to guess her age, for her looks varied. In the street, dressed in
black and wrapped in a cape, with her head bent and eyes fixed on
the ground, the only visible part of her face her large nose,—which
was shaped like the beak of a bird of prey and adorned with a black
and white wart, shaped like a sweet pea, a legacy of her misfortune,
—she looked about seventy. But at home, without the cape, with her
face held erect, with her abundant black hair which a young girl
might have envied, with her energetic movements and sharp,
penetrating eyes, one could not have imagined her over sixty.
From what we have been saying our readers will suppose that the
widow was ugly, and really her ugliness was perfection. She was
very tall, with a muscular and somewhat masculine form, a very
large mouth, with an overlip covered with a black down that
resembled a moustache, with only two large and sharp upper teeth
remaining, with two patches of hair on each side of her beard, a
narrow furrowed forehead, thick bushy eyebrows, and round sunken
eyes. One of these, the left one, she invariably closed when
speaking rapidly or looking attentively at any object, while the other
then became very expressive, and it was impossible to avoid her
penetrating gaze. Her voice was heavy and obscure, sounding,
whenever she raised it, like an echo from the distance. Some of her
ill-natured detractors had even said that there was reason to doubt
the sex of Doña Elena, as she might as easily be a beardless man in
disguise as a bearded woman.
Now that we have described the widow, if not as she really was, at
least as she was known to the world, we will speak of her daughters.
They did not resemble the widow in the least. They were young,
nineteen, eighteen, and seventeen, and were all prodigies of beauty.
They were called Sol, Luz, and Estrella, and with the dark clouds of
Doña Elena’s ugliness, formed a heaven on earth.
Doña Sol’s face was somewhat dark, and oval, her hair black, and
her eyes of the same color, lazy, wide open, with glances penetrating
and expressive, such glances as set you on fire, and produce an
effect similar to that of an electric current. It was impossible to look at
her unmoved, for her lips were as provoking as her fiery eyes were
burning, and it was unnecessary for her to speak or smile to set the
coldest hearts on fire, and turn the heads of the steadiest.
Doña Luz was not so tall, and of somewhat fuller though
wonderfully perfect proportions, with a fair skin, chestnut hair, and
large gray eyes with long lashes, through which passed her sweet,
quiet and melancholy glances. There was always a slight smile on
her lips, her words were pleasant, she showed great tenderness and
common sense, and was one of those gentle spirits, who, instead of
promising ineffable pleasures, offer a sweet happiness and all the
delights of an unalterable calm.
It is impossible to draw a correct likeness of Doña Estrella, who
was a spiritual and sublime being, one of those angels in human
form, apparently descended from Heaven to give us a conception of
celestial beauties. Her blonde hair, pure transparent azure eyes,
slender form and delicate shape presented a combination of
unutterable charms. Sensible, innocent, candid, and timid,—we
repeat, it is impossible to give a correct description of Estrella.
It seems impossible, too, that three girls such as we have tried to
describe could all fail to find husbands, but as we have observed,
public opinion was strongly rooted against them, and there were
people who firmly believed that their wonderful beauty was the work
of Satan to lure the innocent to destruction.
The four always went together to fulfil their religious duties, the
girls in front, the youngest first, and the mother bringing up the rear
that she might watch over them all, even with her left eye closed as it
usually was. Those who met the little procession, saw first of all
Estrella, whose timidity kept her eyes fixed on the ground, and,
impressed with the sentimentality and sublimity of her blushing
innocence, they looked up to see Doña Luz, full of artlessness and
enviable tranquility, showing her face like one who had nothing to
fear from malice; and finally, willing or unwilling, were compelled to
meet the running fire which darted from the eyes of Doña Sol—eyes
that in the street did not look upon you face to face, but slyly as if
they did not wish to see. After all these pleasant, fascinating and
enchanting visions, they beheld the round sunken eyes of the widow,
eyes with pupils like phosphorescent lights in the depths of some
cavern, and her big nose with the wart on it. And they would ask
themselves if such a horrible looking monster could really have given
birth to such beautiful daughters.
In spite of all that was said about them, the influence of their
charms brought many daring wooers to the street inhabited by Doña
Elena, and the sounds of the guitar, and voices filled with deep
emotion chanting their sweet love songs, could frequently be heard
there, yet no one of these nocturnal troubadours could pride himself
upon having noticed the smallest opening of a window or balcony in
the dwelling of these bewitching women. It happened, too, that none
of these serenades ever ended in bloody affrays, as was frequently
the case in those times, and these are our proofs for the assertion
that the young ladies never gave rise to any scandal which could
injure their reputation.
But curiosity is never hindered by obstacles and is perhaps more
tenacious than love itself, and so sometimes the lovers and
sometimes inquisitive outsiders attempted to bribe the servants of
the widow, but succeeded only in learning that there are some
servants who are incorruptible. Yet their attempts did not stop there,
for the slyest of all found some means of entering into relationship
with the only three persons who visited the widow, that is, the
Dominican friar, the Knight of Santiago, and the lame, one-eyed
captain.
But the friar when approached on the subject only said:
“It is not permitted to clergymen to speak about their children of
the confessional, for this might lead to indiscretions which, however
harmless, might become dangerous in the end.”
The Knight of Celibacy would answer angrily:
“This respectable lady is my friend. I don’t know anything more.”
 And the veteran, looking askance at the interrogator with his
remaining eye, would say, twisting his moustache angrily:
“Por Dios Vivo! What I detest most is an inquisitive person.”
And all this contributed to the fact that Doña Elena and her
daughters were looked upon as mysterious people.
We have now only to state that they lived in a large house in the
street called “de las Infantas,” which in those days began in “La
Hortaleza” street, and ended in a dirty alley, which formed an angle
following the garden wall of the convent of the Barefooted
Carmelites.

CHAPTER II.
THE WOOERS.

It was in the month of November.

The clocks struck ten, an hour of the night when most of the
inhabitants of Madrid are at home, and the streets were almost
deserted, dark, and silent. There was no moonlight and the stars
were not very bright, for the sky was clouded near the horizon.
A man entered Infanta street, coming from the direction of
Hortaleza, while at the same time another appeared from the other
side. It was impossible to distinguish their features, but one was
taller and thinner than the other. They advanced rapidly to the middle
of the street,—it was dangerous to walk near the walls as an arm
clasping a dagger might dart out from near any entrance,—saw each
other and stopped, while at the same time a third man, short and
stout, came out of San Bartolome street, and stopped likewise on
seeing them. The three remained immovable about fifteen or twenty
steps apart, and scrutinized each other as closely as the light would
permit.
The space where the Bilboa Square is now situated was at that
time occupied by some houses belonging to the licenciado
(jurisconsult) Barquero, and it was there that, later on, the convent of
the Capuchin Friars was built, for reasons which will be explained
later.
What the three men thought of each other is hard to tell, but it was
plain that each one was displeased to find that he was not alone.
About five minutes, which must have seemed an interminable time to
them, passed, and then all three turned their faces in the same
direction, and were able to watch Doña Elena’s house, and to see
that a light was visible through a crevice in one of the balconies.
“They are not asleep yet,” said one to himself, “but these fellows
are in my way.”
“Are they after the same thing as I?” the second asked himself.
“I shall be patient and come back later,” murmured the third.
“They are looking at the balcony.”
“Which of them is it?”
“This affair is beginning badly and may end worse.”
Another five minutes passed, and then the tallest one, losing
patience, turned and walked slowly up the street.
“Since he is going I sha’n’t stay here. I’ll follow him and try to bring
to light that which is as dark as this unfortunate night.” And the one
who came out of the garden also went up the street.
A few minutes after, the chubby one followed the other two.
We cannot tell whether each one knew that he was followed by the
others, or not, but after passing several streets they reached one
called “Majaderitos,” or to speak more correctly the first reached it,
the second being in Carretas street, and the third in Puerta de Sol.
In those days there was in this Majaderitos street a hostelry, the
resort of all gay young people, and more frequented by night than by
day, as a general thing. The doors were always locked at the hour
prescribed by law, but would be opened for every customer, and at
all hours of the day and night one could find there good eating and
still better wines, while as the house had many large apartments and
small rooms, and as the hotelkeeper and all the attendants were
accommodating, wise, and discreet, those who honored the house at
any time that was convenient found there independence, freedom,
and forgetfulness of their troubles.
The muffled wanderer stopped at this inn and called. A small
window opened immediately, and a voice asked,
“Who is there?”
“A very good friend.”
Apparently this was the countersign, for the door opened, and the
visitor met a man who greeted him with,
“God protect you, Señor Alonso.”
“Are there many people here?”
“Nobody at all.”
“Then there will be no noise.”
“Are you alone?”
“Can’t you see that I am?”
“The whole house is at your disposal.”
“Put me wherever you please.—Here,” said Señor Alonso,
entering a room whose only furniture was a large table, “and give me
whatever you like for supper, but the best wine that you have, for I
have something important to talk to you about, and I want to get my
head clear.”
“Would you like a piece of loin with gravy, and a slice of roast
lamb?”
“Yes.”
The innkeeper went out, and Señor Alonso, taking off his coat, sat
down at the table with the lamplight full in his face. He was, as we
have already said, tall and spare, and we will now add that he was
about thirty, was well dressed, and that there was nothing
extraordinary in his manners except, perhaps, the keen glance of his
small round gray eyes. His movements were energetic, and he
seemed endowed with a great deal of muscular force. The length of
his arm would have made him a dangerous opponent with a sword in
his hand, if he had known how to use it.
While the keeper was away someone else knocked at the door,
and a few minutes later, another person entered the room. There
was no reason why he should not stay, and so he stayed. Giving a
“Good evening” to Señor Alonso, and taking off his coat, he also sat
down, at the other end of the table, saying to the landlord,
“I leave the supper to your discretion, but the wine—”
“Shall be an old one and pure, Señor Hidalgo.”
“That is the kind I want.”
This second person was the one who had been following the first.
He looked about twenty-five and his face was aquiline, swarthy and
bilious, with a clear forehead, black hair, wide black eyes with long
lashes, and a glance fiery and expressive, sometimes penetrating,
sometimes melancholy. He showed much intelligence, not a little
cunning, valor, and courage. While taking his seat he glanced at
Señor Alonso, who was also watching him, and both frowned slightly.
The landlord went out to get the supper, but soon returned without
it, bringing with him another guest, apparently also a hidalgo, short
and bulky, with an apoplectic complexion, shining eyes and a large
mouth which was slightly opened in a pleasant smile. He might have
been about twenty-eight, his clothing was good and new although
dark, contrasting with that of the second arrival, whose clothes were
not only bright colored, but adorned with all the ornaments that were
permitted to people of his class. He saluted very politely, took off his
coat, ordered his supper, and sat down, whereupon the looks of the
other two were centered upon him, while he examined them
alternately.
“I recognize them. They are the same ones,” said Señor Alonso to
himself.
“I have followed them, and they are after me,” thought the one with
the black eyes. “So much the better, for now we will get rid of all our
doubts, and finish things once for all.”
 The supper was brought in at last and the three men, as if obeying
the same impulse, filled their glasses and began to drink. Then they
began to eat in almost absolute silence. It was, however, only the
calm before the storm. Apparently the three hidalgos were only
occupied with their supper, but while eating and drinking they were
stealing angry glances at each other. Each one was trying to find
some pretext for opening a conversation, but could not find anything
to suit, till at last he of the bright clothes lost patience, and, calling
the landlord, said,
“I cannot live without talking. Silence vexes me, and I cannot
digest my supper without conversation.”
“Since I am busy waiting upon you—”
“You will serve me better by listening to me.”
“You honor me more than I deserve.”
“I will tell you what has happened to me, and as you are older and
wiser than I, and have more experience, you shall advise me, for I
feel half stupified and perplexed.”
“In that case, speak, Señor Hidalgo. You have all you want here
now, and I can stay.”
“Tripas de Satanas! I am the most unhappy of living creatures, for I
am madly in love with the most beautiful and bewitching woman ever
born.”
“If she is unmarried—”
“Yes.”
“And honorable, and of your own station in life—”
“She is all that.”
—Señor Alonso knit his brows. The chubby-cheeked no longer
smiled.—
“And does not this noble lady return your favor?”
“She has given some indications that make me feel hopeful.”
“Well, if she does not love another.—”
 “Vive Dios! But there are others who aspire to her love. I have just
learned it. I have seen it, and—I went to the street where the beauty
lives who has captivated me, and when I got there two other suitors
appeared. They watched as I watched. I waited and they waited.
What ought I to have done? At first the blood rushed to my head,
and then I laughed, for what followed seemed amusing to me. And
now I don’t know how I feel.”
“And do you know your rivals?”
“In the daytime I could have recognized them, but in the dark all I
could see was their two bodies. When they found me there why did
they not come to me and tell me that I was disturbing them?”
“Excuse me,” said Señor Alonso, “but since you are talking in a
loud voice and I am not deaf—”
“Well, say what you please.”
“Since you kept silent and did not draw your sword, why do you
think it strange that they did the same? And besides, are you sure
that they looked at the same balcony and had the same object in
view as yourself?”
“From the place where they stood—”
“It seems to me that I know one of your supposed rivals.”
“Indeed?” said the black-eyed quickly.
“As surely as this wine is from Arganda,” answered Señor Alonso,
raising his glass to drink. “And Crispin here cannot deny that it is
Arganda wine.”
“And I know the other rival,” said the stout man.
Two sparks shot from the eyes of the youngest, and he sprang to
his feet. “Vive el cielo!” he cried. “What are their names?”
“Here is one,” said Señor Alonso, pointing to their chubby
companion, who rose, and standing behind his chair as though to
make a rampart of it, laid his hand on his sword and said quietly,
“And you can see the other now.”
 “Rayos!”
“Por el infierno!”
The three swords flashed, but for a moment the hidalgos stood
motionless and silent.
“Dios misericordioso!” exclaimed the innkeeper in accents of
terror. “What are you going to do? Have you all taken leave of your
senses? At least wait until you are sure that you have not made a
mistake. And then, how are you going to fight? There are three of
you, and all enemies.”
“Let me alone.”
“How can I let you alone when you are trying to ruin me? The
police have never entered my house as yet, but if they should once
succeed, everything would be lost, and my reputation ruined.”
“That will do.”
“You must talk like reasonable beings, until you are convinced that
there is no possible agreement.”
“It is impossible. I would sooner die than yield.”
“And I, too.”
“I say so, too,” said the chubby-cheeked.
“The love of that enchanting being is my life.”
“To me it is happiness.”
“And I have lost my senses through her looks.”
“Well, let her belong to the bravest or the luckiest.”
“I suppose you are not going to kill each other here,” said the
innkeeper.
“No matter where.”
“I will scream and the patrol will come.”
“Stop your talking this moment!”
“Let us finish it at once.”
 “I have decided, and I am at your disposal,” said Señor Alonso.
“Which of you is ready to fight with me?”
“I am,” said the youngest.
“I have nothing to say against that, for I have the comfort of
knowing that one of you will always be left for me.”
“You have too big an abdomen. It will be a hindrance to you.”
“And you have more tongue than is needed on such occasions.”
“Cuernos de Lucifer!”
“Come into the street.”
“No, right here.”
“Unfortunate men!” cried the innkeeper, seeing that the swords
began to move, that the eyes flashed, and that the rivals began to
approach each other. “They are going to kill each other, and they do
not even know that they are in love with the same woman.”
“There is some reason in that.” said the chubby-cheeked, “for it is
possible that we are deceived by appearances.”
“Vive Dios!” exclaimed the black-eyed. “You are getting scared
already and trying to find an excuse, but you won’t succeed, for only
one of us will be alive after to-night.”
“What I feel is not fear, but common sense.”
“Is it possible that there can be a mistake?”
“Yes.”
“Weren’t you watching in front of the licenciado Barquero’s
house?”
“And I, too,” said Señor Alonso.
“Then since she lives there—”
“Thank God! you are not going to kill each other then,” interrupted
the landlord, whose face was covered with cold sweat, “you are not
going to,—no.”
 “Why?”
“Doña Elena—But quiet down now. Put your swords in their
scabbards and sit down and listen to me.”
It was all that was needed to let the first burst of passion subside
without further consequences.
“Explain to us,” said the fat one, sitting down.
“In the first place, it is impossible that such hidalgos as you should
kill each other for such women, who, it is said, owe their beauty to
the diabolical arts of their mother.”
“Take care, Master Crispin! If you let your tongue run away like
that⸺”
“I repeat that it is said so. But leaving that aside,—though it ought
not to be, for it is important,—there is still the fact that since there are
three daughters—”
“Three!”
“Didn’t you know that?”
“Fuego de Satanas!”
“It is quite possible that each of you may have fallen in love with a
different one. Then in that case you are not rivals, but you ought to
be the best of friends.”
“Certainly.”
“You, Señor Alonso, came here a month ago, and yet you do not
know the ground you are treading on.”
“I have been here for the last fifteen days.”
“And I twelve.”
“Bah! The subject is changing its aspect.”
“How are we going to find out whether it is the same one or not
who has set all our hearts on fire?”
“They are not like each other. Doña Sol has a dark complexion.
Her eyes are as black as jet—”
 “That is the one I am in love with. She must have a soul of fire,”
said Señor Alonso.
“Still I am not satisfied,” said the youngest.
“Nor I either,” echoed the chubby-cheeked.
“The second is Doña Luz.”
“White?”
“Yes.”
“Thunder!”
“Oh!”
“Chestnut hair.”
“You mean red.”
“No.”
“And gray eyes.”
“Are you sure they are not blue?”
“Doña Estrella’s are blue. She is the youngest.”
“I am so happy!”
“What luck!”
“Light of my soul!”
“Star of my existence!”
“Sun, whose rays set my heart on fire!”
“Let’s have more wine, Master Crispin.”
“But I don’t want Arganda wine.”
“Let it come from Jerez.”
And the cries of rage were succeeded by joyous shouts. Their
faces expanded, and their lips opened in smiles. The host brought
the bottles with the fiery sherry, and they drank, toasting the beauty
of Elena’s daughters and the friendship which was to unite them
from that moment and last forever. They vowed to protect each
other, and being true hidalgos were sure to fulfil their oaths.
“Listen,” said Señor Alonso suddenly.
“We are listening.”
“Our friendship must be so firm that it will stand above all other
considerations.”
“A good idea, and well expressed.”
“Is not a friend worth more than a strange woman?”
“Much more.”
“Well, let us swear that not one of us will marry unless the others
succeed in their courtship, too.”
“I swear it.”
“And I.”
“Another cup.”
“To Elena’s beautiful daughters!”
“To our love!”
“To our success!”
“More wine, Master Crispin!”
“Yes, yes,” said the landlord, “wine instead of blood. But don’t you
forget that the faultfinders—”
“I shall tear your tongue out.”
“Let us be more quiet, my friends,” said the chubby-cheeked. “Why
shouldn’t we know all that is said about Doña Elena and her
daughters? We will lose nothing by listening to Master Crispin, and it
is only just that we should appreciate his good intentions.”
“You speak sensibly.”
The landlord brought out more wine.
 However, before we repeat what he said, it would be well to take
more particular notice of these hidalgos.

CHAPTER III.
IN WHICH WE COMPLETE OUR ACQUAINTANCE WITH THE THREE
WOOERS, AND OTHER THINGS.

We will begin with Señor Alonso whose surname was Pacheco.

He was a native of Salamanca, where he had studied philology, and
left his home because he was displeased at his father’s second
marriage. He followed the only career possible to him in that epoch,
that is he enlisted and served for three years in Italy, leaving behind
him proofs of his great valor. This profession might have proved
lucrative for him, for he was much thought of by his chiefs, but he
was dangerously wounded, during his three years service, and
before he had completely recovered his strength, he received a letter
from his father in which he informed him of the death of his step-
mother and complained of feeling sad and lonely during these last
years of his life. Since the cause of Señor Alonso’s discontent was
thus removed, and as he loved his father, and was besides growing
tired of the reckless life of a soldier, he left its perils and its glory to
others, and returned home. Two years passed away, and his father
died, leaving him a sufficient income to allow him to live decently,
and a lawsuit of great importance which, two years later, brought him
to court, where he had been only once before, for a few days on his
way to Italy. Señor Alonso had never been in love, first, on account
of the circumstances in his family, and afterward, because, in his life
as a soldier, he had never had a chance to think of women, except
as objects of diversion, beings who helped to make his life more
pleasant. For the last two months of his stay in Madrid, he had been
absorbed in his lawsuit, which was apparently approaching its end
and looked so promising that it seemed not only possible but
probable that he would soon find himself quite wealthy. Eight days
before our story opens, he had in coming out of the church of San
Jose,—which is now no longer in existence,—noticed among a
crowd of people the head of a lady on whose face he had been
compelled to fix his gaze, even against his own wishes. We may
mention that the hidalgo’s suddenly became as red as though the
blood were trying to rush out, and then he turned pale and nervous,
and began sighing and trembling as though he were quite weary.
What had happened? He himself could not explain it, but the fact is
that Doña Sol’s black eyes were the cause of this commotion. It was
only for a moment, a single moment, that the young girl had looked
into the face of the hidalgo, but it was enough to make him feel as he
had never felt before, and he became so excited that very little was
wanting to make him forget that he was in a sacred place, and force
himself through the crowd toward her, causing the greatest scandal.
But he soon lost sight of those eyes of fire, and provokingly tempting
lips, and longing to see them again, he moved forward, elbowing his
way from one side to the other, and looking about him constantly,
until at last he reached the street. Here he could move at ease, for
the faithful (Catholic Christians who live in obedience to the church)
were dispersing in every direction. He looked about him like a dog
nosing in the air, but he had lost his black eyes. He ran up the street,
and then back, but the bewitching being had completely
disappeared, making it impossible for him to find out who she was or
where he could see her. When at last he rested he was out of breath.
He clenched his fist with all the force of despair, for his desires were
kindling more and more as the obstacles which he encountered
increased. Thus the hidalgo stood for more than half an hour, leaning
against a wall, with drooping head, eyes closed, arms folded, and
mind engaged in contemplating the lady of the black eyes. As he
could do nothing more, he had to resign himself to fate, trusting that
an accident might bring about better luck. He went to church the next
day, but without meeting her. Thus he passed four days, always
preoccupied, sleeping very little, and eating still less, when one
morning, returning from mass, and passing down Las Infantas street,
he heard a woman’s voice, and raising his eyes, could not restrain
an exclamation of surprise and joy, for there on the balcony was the
bewitching brunette, leaning out to call after a man who was just
leaving the house. The man, who was small, ugly and stupid looking,
returned and entered. Doña Sol, as if by accident, looked at the
hidalgo, left the balcony, turned round to close the blind, gave him
another glance, and disappeared.
“Ah,” sighed Señor Alonso, as though he wished to send his soul
after the young lady, “how happy I am!”
There was no longer any necessity to search for her; all he had to
do was to approach her. Judging correctly that the little man was a
servant, he decided to wait for his return, imagining that as his purse
was well stocked it was all that was necessary. In less than five
minutes the servant came back and started on his errand. Señor
Alonso followed him, stopped him in La Horteleza street, and,
showing him a gold piece, said,
“Don’t be offended at my offering you a little present. Take this.”
“What do you wish?” asked the servant, smiling, and examining
the hidalgo from head to foot.
“Almost nothing, but it is a great deal to me. I worship your lady—”
“Ah, already?”
“I am a hidalgo, have enough to live on, and before two months
are over I shall be quite rich, and you, too, if you serve me.”
“I understand.”
“My name is Alonso Pacheco.—But here, take this.”
“No.”
“You refuse to serve me? Perhaps your lady is no longer mistress
of her heart?”
“She loves no one,” said the servant, candidly.
“How fortunate!”
“I am obliged to tell my noble lady everything I see or hear in the
street, and everything I do or say.”
“In that case—”
“May God keep you!” said the servant, turning and running away
so quickly that it would have been impossible to overtake him.
 Señor Alonso was left behind with the money in his hand.
“Vive el cielo! Could anybody imagine such a thing?”
He had, however, the consolation of thinking that his words would
reach the ears of the beautiful young girl, and that she would make
him some sign if she should reciprocate his affection, or wish to
correspond with him, and he was glad that fortune favored him so far
that there was no rival in the case. Next day Señor Alonso went
again to Las Infantas street, and was rewarded by seeing the young
girl, who opened the balcony, put out her head and immediately
disappeared. And the same thing happened day after day, and as
Doña Sol always gave the gallant a glance, he was induced to think
that she reciprocated his affection, although he expected still to have
to surmount many difficulties. He came again at night to look at the
house and sigh, and behaved in every respect like a beardless lad of
seventeen. He had never been in love before, and now it had taken
such firm hold of his heart that it would never leave it again. Señor
Alonso regretted very much that he had never learned to play the
guitar, and that his voice was not pleasant, for he was deprived of
the pleasure of serenading his beloved. Pacheco was honorable,
brave, and had a noble heart, his one fault being that his only
solution of difficult questions was the sword. That was the result of
his old training and soldier life. He had thought more than once that
the best plan would be to scare the stupid servant with a cudgel,
instead of offering him money, but fortunately he could not find an
opportunity of carrying out his absurd resolution.

Now, let us say a few words about the black-eyed hidalgo. His
name was Jacinto Carmona, he was from Sevilla, and he, too, had
enough to live decently, although he was not rich, and spent all he
had—and more too—in enjoying himself, and dressing as
extravagantly as possible. At ten years old he had been left an
orphan under the guardianship of a clergyman, a man of honor, but
very strict and severe, who had always tried to do his duty in bringing
up the orphan in the ways of virtue and training him to work and to
be a useful man. He made him study Latin for five years, but could
not accomplish anything more. The boy was as turbulent as
possible, and the more severe the punishment, the more he rebelled,
the result of which was that the good priest became so weary that he
had finally to acknowledge himself conquered. The good man
complained of his misfortune, but his young pupil complained still
louder, asserting that he was the victim of exaggerated severity and
the stale prejudices of his guardian.
“You can see for yourself,” he would say. “You have only to look at
my clothes to see how I am treated. They have been worn out and
mended so often that it would be hard to tell which was the original
stuff. Didn’t my father leave me an income of six hundred ducats?
Why shouldn’t I be dressed decently? And as for eating, even
without counting fast days, how often do I get meat? Very seldom,
indeed. For my uncle says that gluttony is a mortal sin, and
whenever he wants to punish me he makes me do without breakfast,
dinner, or supper, and as he wants to punish me pretty often, the
result is that I fast half the days in the year. That’s the reason that I
am so thin and pale and weak, and in the end I shall die, not from
any disease, but from starvation. Though my uncle does say that I
look that way on account of my sins, and that I would be possessed
by an evil spirit, if it were not for his fervent prayers which the good
Lord has heard.”
Whenever Jacinto spoke in this strain he appeared much moved,
his eyes would become moist and at times he would even weep. And
being a handsome young man, he always appealed to the women,
so that he found plenty of defenders whenever he quarrelled with his
uncle. The fair sex was his weakness, and his follies in this direction
excited serious disgust in more than one of his acquaintances. When
the young man reached his twenty-fifth year, his uncle surrendered
to him his inheritance, in a greatly improved condition, and gave him
some good advice besides. Jacinto felt like a man who has been a
long time in prison and suddenly recovers his liberty. He threw
himself with avidity into a life of dissipation that would have speedily
accomplished his ruin if his good uncle had not continued his advice
and sometimes admonished him severely.
 “I want to see the world,” said the young fellow at last, and
gathering together all the money he could obtain, and bidding his
uncle farewell, he took the road to Madrid, leaving behind him three
women who had been foolish enough to believe in the love of a
young scapegrace.
Apart from this failing, Jacinto was very kind-hearted, and could
not look upon distress unmoved. What was his object in going to
Madrid? He wanted expansion, emotions, life, and went without any
definite object. He had never been seriously in love, and, to his
misfortune, the same fate as Señor Alonso’s overtook him. One day
he saw Doña Luz on one of the balconies of her house, and, as we
have mentioned, she neither looked at people on the sly, or sought
to hide herself, as did her sisters. Jacinto stared at her, and she
contemplated him with perfect tranquility. He felt that his heart was
beating more strongly than usual, and Doña Luz, probably
unconsciously, smiled.
“Where am I?” cried the young man. “Not even in dreamland can
one conceive such a vision of beauty.”
The quiet look, revealing the tranquility of its owner’s mind,
charmed the young man all the more in that he was beginning to tire
of his stormy pleasures. He could contain himself no longer, but
lifting his head was preparing to call to her with his customary daring,
when Doña Luz smiled a second time, and disappeared.
“She would not have listened to me!” exclaimed the young man in
despair. “And yet she smiled to me when she left. Now that I think of
it, it would have been folly to do what I was thinking of, and she has
given me a lesson that will teach me to be more prudent.”
After this Doña Luz came to the balcony every day at the same
time, always perfectly tranquil, and always smiling, and Jacinto
finished by falling seriously in love. Not knowing any one in Madrid,
he could not find out who the lady was, and as luck would have it, he
never saw the stupid servant, either going or coming. This was the
situation of affairs when he met the other two gallants.