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The Spirit Of Capitalism, Asset Returns, And The Business Cycle

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  • BOILEAU, MARTIN
  • BRAEU, REBECCA

Abstract

We evaluate whether the spirit of capitalism improves the ability of the real business cycle model to explain the main features of both asset return and the business cycle. In our model, the spirit of capitalism is embodied in the assumption that individuals have preferences for financial wealth. Our simulation results suggest that this assumption may improve the model s ability to explain the risk-free rate puzzle but not the equity premium puzzle. This assumption also markedly deteriorates the model s ability to account for the main features of the business cycle.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Macroeconomic Dynamics.

Volume (Year): 11 (2007)
Issue (Month): 02 (April)
Pages: 214-230

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Handle: RePEc:cup:macdyn:v:11:y:2007:i:02:p:214-230_06

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Cited by:
  1. Richard M. H. Suen, 2012. "Time Preference and the Distribution of Wealth and Income," Working papers 2012-01, University of Connecticut, Department of Economics.
  2. Lilia Karnizova, 2008. "The Spirit of Capitalism and Expectation Driven Business Cycles," Working Papers 0804E, University of Ottawa, Department of Economics.

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