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Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism

Author

Listed:
  • Qichun He

    (Central University of Finance and Economics)

  • Yulei Luo

    (University of Hong Kong)

  • Jun Nie

    (Federal Reserve Bank of Kansas City)

  • Heng-fu Zou

    (Central University of Finance and Economics)

Abstract

According to Schumpeter (1934), entrepreneurs are driven to innovate not just for the fruits of success but also for success itself. This description of entrepreneurship echoes Weber's (1904-05, German; 1958) description of the “spirit of capitalism,†which states that people enjoy the accumulation of wealth regardless of its effect on smoothing consumption. This paper explores the implications of the spirit of capitalism on monetary policy, growth, and welfare in a Schumpeterian growth model. Different from the existing literature, we show that money is not superneutral in the long run and it could promote economic growth when the spirit of capitalism is strong. Furthermore, we show the optimal nominal interest rate decreases with the strength of the spirit of capitalism, potentially supporting a negative interest rate. (Copyright: Elsevier)

Suggested Citation

  • Qichun He & Yulei Luo & Jun Nie & Heng-fu Zou, 2023. "Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 47, pages 346-372, January.
    • Handle: RePEc:red:issued:21-41
    DOI: 10.1016/j.red.2022.03.001
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    2. Angus C. Chu, 2022. "Inflation, innovation, and growth: A survey," Bulletin of Economic Research, Wiley Blackwell, vol. 74(3), pages 863-878, July.
    3. He, Qichun, 2023. "The inverted-U effect of inflation on growth: Cross-country evidence," Economic Modelling, Elsevier, vol. 128(C).

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    More about this item

    Keywords

    spirit of capitalism; cash-in-advance; Schumpeterian model; monetary policy; growth and welfare;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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