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Dynamic Efficiency in an OLG Model With the Spirit of Capitalism

Author

Listed:
  • Yanzhao Liu

    (Jinhe Center for Economic Research, Xi'an Jiaotong University)

  • Liutang Gong

    (Guanghua School of Management and LMEQF, Peking University
    School of International Economics and Management, Beijing Technology and Business University)

  • Jianjian Liu

    (School of Finance, Shandong University of Finance and Ecoonomics)

  • Chan Wang

    (School of Finance, Central University of Finance and Ecoonomics)

Abstract

In this paper, we aim to answer the question why the natural rate of interest displays a downward trend by introducing the spirit of capitalism in the spirit of Zou (1994, 1995) in Diamond (1965). We find that the capital stock is higher and the interest rate is lower in our model than their respective counterparts in Diamond (1965). We also find that the stronger the spirit of capitalism, the higher the capital stock and the lower the interest rate. We conclude from the above findings that the decentralized equilibrium in an OLG model with the spirit of capitalism is more likely to be inefficient than that in Diamond (1965).

Suggested Citation

  • Yanzhao Liu & Liutang Gong & Jianjian Liu & Chan Wang, 2022. "Dynamic Efficiency in an OLG Model With the Spirit of Capitalism," Annals of Economics and Finance, Society for AEF, vol. 23(2), pages 315-328, November.
  • Handle: RePEc:cuf:journl:y:2022:v:23:i:2:liu:gong:liu:wang
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    More about this item

    Keywords

    The spirit of capitalism; OLG model; Dynamic inefficiency;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General

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