An economy's optimal response to temporary and anticipated future changes in government spending is examined in the context of a two-country model which highlights the role of the elasticity of intertemporal consumption substituion (ICS). Soecial attention is devoted to the case in which both governments pursue identical policy measures. The qualitative effects of such measures on an economy's current account, its terms of trade (in a two-commodity world), and its real exchange and interest rate (in a world with non-traded goods) are shown to depend on the relationship between the domestic and the foreign elasticity of ICS.