Working Paper: NBER ID: w2789
Authors: Robert E. Hall
Abstract: Sir John Hick's Value and Capital provided the theoretical foundation for an important element of modern macroeconomics. Intertemporal substitution - deferral or acceleration of economic activity in response to the real interest rate and other incentives - is the mechanism generally relied upon in equilibrium theories of macroeconomics to explain the irregular evolution of the economy over time. Even theorists who question the pure market-clearing paradigm are concerned with intertemporal substitution in measuring deadweight burden of fluctuations. This paper surveys recent empirical evidence on intertemporal substitution with regard to the type of fluctuations model introduced in Value and Capital.
Keywords: intertemporal substitution; macroeconomic fluctuations; labor supply; real interest rates
JEL Codes: E21; E23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher interest rate (E43) | deferral of spending (H61) |
| higher interest rate (E43) | acceleration of production (E23) |
| temporary high real wages (J39) | burst of work effort (J29) |
| intertemporal substitution (D15) | stabilizing effects in the economy (E63) |
| temporary changes in current prices (E39) | large shifts in supply and demand (E39) |