The Spirit Of Capitalism, Asset Returns, And The Business Cycle
AbstractWe 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 InfoArticle provided by Cambridge University Press in its journal Macroeconomic Dynamics.
Volume (Year): 11 (2007)
Issue (Month): 02 (April)
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- Richard M. H. Suen, 2010. "Time Preference and the Distributions of Wealth and Income," Working Papers 201004, University of California at Riverside, Department of Economics, revised Feb 2010.
- Lilia Karnizova, 2008.
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0804E, University of Ottawa, Department of Economics.
- Karnizova, Lilia, 2010. "The spirit of capitalism and expectation-driven business cycles," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 739-752, September.
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