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The Spirit of Capitalism, Precautionary Savings, and Consumption

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Author Info

  • Yulei Luo

    (School of Economics and Finance, University of Hong Kong)

  • William T. Smith

    (Department of Economics at Fogelman College of Business and Economics, University of Memphis)

  • Heng-fu Zou

    (The World Bank
    CEMA at the Central University of Finance and Economics
    Shenzhen University
    IAS at Wuhan University)

Abstract

Recent research has shown that the "spirit of capitalism"¡ªa preference for wealth itself, in addition to consumption¡ªhas important implications for growth and asset pricing. This paper explores how the spirit of capitalism affects saving and consumption behavior. We demonstrate that the spirit of capitalism may reduce the importance of precautionary savings. It can also explain the excess sensitivity puzzle: the spirit of capitalism causes dramatic deviations from a random walk. It may also offer a partial explanation of the excess smoothness puzzle.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 274.

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Length: 12 pages
Date of creation: 08 Nov 2006
Date of revision:
Publication status: Published in Journal of Money, Credit and Banking, Volume 41, Issue 2-3, pages 543¨C554, March-April 2009
Handle: RePEc:cuf:wpaper:274

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Web page: http://cema.cufe.edu.cn/
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Keywords: the spirit of capitalism; consumption and saving behavior; the sensitivity and smoothness of consumption;

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References

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  1. Gong, Liutang & Zou, Heng-fu, 2002. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 247-270, February.
  2. Campbell, John, 1994. "Inspecting the Mechanism: An Analytical Approach to the Stochastic Growth Model," Scholarly Articles 3196342, Harvard University Department of Economics.
  3. Heng-fu Zou, 1995. "The spirit of capitalism and savings behavior," CEMA Working Papers 79, China Economics and Management Academy, Central University of Finance and Economics.
  4. Heng-fu Zou, 1995. "'The spirit of capitalism' and long-run growth," CEMA Working Papers 94, China Economics and Management Academy, Central University of Finance and Economics.
  5. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  6. Liutang Gong & Heng-fu Zou, 2001. "Money, social status, and capital accumulation in a cash-in-advance model," CEMA Working Papers 55, China Economics and Management Academy, Central University of Finance and Economics.
  7. Campbell, John & Deaton, Angus, 1989. "Why Is Consumption So Smooth?," Scholarly Articles 3221494, Harvard University Department of Economics.
  8. Eric R. Young, 2004. "The Wealth Distribution and the Demand for Status," Macroeconomics 0410008, EconWPA.
  9. Wang, Neng, 2006. "Generalizing the permanent-income hypothesis: Revisiting Friedman's conjecture on consumption," Journal of Monetary Economics, Elsevier, vol. 53(4), pages 737-752, May.
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Citations

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Cited by:
  1. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2011. "Status Preference and the Effects of Patent Protection: Theory and Evidence," CEMA Working Papers 588, China Economics and Management Academy, Central University of Finance and Economics.
  2. Yulei Luo & William T. Smith & Heng-fu Zou, 2011. "The Spirit of Capitalism and Excess Smoothness," CEMA Working Papers 484, China Economics and Management Academy, Central University of Finance and Economics.
  3. Shiyuan Pan & Mengbo Zhang & Heng-fu Zou, 2013. "The Effects of Patent Protection: A Growth Model with Status Preference," CEMA Working Papers 574, China Economics and Management Academy, Central University of Finance and Economics.
  4. Shu-Hua Chen, 2012. "On the Growth and Stability Effects of Habit Formation and Durability in Consumption," Annals of Economics and Finance, Society for AEF, vol. 13(2), pages 283-298, November.

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