This paper summarizes the theoretical role of intertemporal substitution variables in the "new classical macroeconomics." An important implication is that positive monetary shocks tend to raise expected real returns that are calculated from the usual partial information set, but tend to lower...

Because of a small direct negative effect on private spending, temporary variations in government purchases as in wartime, would have a strong positive effect on aggregate demand. Intertemporal substitution effects would direct work and production toward these periods where output was valued...