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Intertemporal Substitution in Macroeconomics: Consumption, Labor Supply, and Money Demand

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  • Dutkowsky, Donald H
  • Foote, William G

Abstract

This paper introduces money into the consumption-leisure based intertemporal substitution model. The optimization problem poses that the household chooses consumption, labor supply, money demand, and wealth. Holdings of real money balances along with consumption and leisure determine utility. The constant decomposes wealth into money and an alternative asset. The authors estimate the derived semireduced-form equations using per capita U.S. data. The findings indicate significant interest-rate intertemporal substitution in labor supply, but weak effects in consumption and money demand. The empirical evidence supports contemporaneous nonseparability of consumption, money, and leisure within a well-behaved underlying utility function. Copyright 1992 by MIT Press.

Suggested Citation

  • Dutkowsky, Donald H & Foote, William G, 1992. "Intertemporal Substitution in Macroeconomics: Consumption, Labor Supply, and Money Demand," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 333-338, May.
    • Handle: RePEc:tpr:restat:v:74:y:1992:i:2:p:333-38
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    Cited by:

    1. Ingrid Groessl & Ulrich Fritsche, 2006. "The Store-of-Value-Function of Money as a Component of Household Risk Management," Macroeconomics and Finance Series 200606, University of Hamburg, Department of Socioeconomics.
    2. Kangni KPODAR, 2008. "Why Has Unemployment in Algeria Been Higher than in MENA and Transition Countries?," Working Papers 200803, CERDI.
    3. Mr. Kangni R Kpodar, 2007. "Why Has Unemployment in Algeria Been Higher than in MENA and Transition Countries?," IMF Working Papers 2007/210, International Monetary Fund.
    4. Marinko Škare & Sabina Lacmanovic, 2016. "Human Capital and Economic Growth - How Strong is the Nexus?," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 18(43), pages 612-612, August.
    5. João Ricardo Faria & Miguel León-Ledesma, 2000. "The Intertemporal Substitution Model of Labor Supply in an Open Economy," Studies in Economics 0009, School of Economics, University of Kent.
    6. Faria, Joao Ricardo & Leon-Ledesma, Miguel A., 2005. "Real exchange rate and employment performance in an open economy," Research in Economics, Elsevier, vol. 59(1), pages 67-80, March.
    7. Ada Šabic-Lipovaca & Wadim Strielkowski & Yuriy Bilan, 2016. "Intertemporal Substitution and Labour Supply of Bosnian SME’s," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 18(43), pages 634-634, August.
    8. Veli Safak & B. Onur Tas, 2012. "Labor Supply and Monetary Policy," Working Papers 1205, TOBB University of Economics and Technology, Department of Economics.
    9. Buffie, Edward F, 1999. "Public Sector Wage Cycles and the Co-movement of the Fiscal Deficit and Inflation in Less-Developed Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 785-810, November.
    10. Kangni Kpodar, 2011. "Why Has Unemployment in Algeria Been Higher than in MENA and Transition Countries?," CERDI Working papers halshs-00556938, HAL.

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