Ebook Introduction to intertemporal substitution in economic models
Properly developed model of economy always requires solid microeconomic foundations. Wojtyna (1995) considers that lack of such basement was one of the main disadvantages of keynesian models.
The economists representing neoclassical attitude managed to avoid this drawback. The example of Nobel Prize for Kydland and Prescott in 2004 confirms, that only complex macro and microeconomic explanations deserves the highest award.
In this paper the authors present the conception of influence of interest rates and real wages on agent’s optimal decisions about preferred level of consumption, labor input and, as a result on the production level. The concept of intertemporal substitution and intertemporal choice, mentioned by the creators of real business cycle models (RBC theory) was used (see Prescott, 1986) in order to show this.
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