Substitution over Time in Work and Consumption

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.