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Risk-taking, fiscal policies, asset pricing, and stochastic growth with the spirit of capitalism

  • Gong, Liutang
  • Zou, Heng-fu

In this paper, we study risk-taking, fiscal policies, and asset pricing in a stochastic model of growth with non-expected utility function and the spirit of capitalism. With specific assumptions on the production technology, preferences, and stochastic shocks, we derive the explicit solutions to the growth rates of consumption and savings and equilibrium returns on all assets. Finally, we give the effects of fiscal policies, the spirit of capitalism, and stochastic shocks on growth, asset pricing, and welfare.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37426.

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Date of creation: 01 Jan 2012
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Handle: RePEc:pra:mprapa:37426
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  1. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
  2. Jonathan Eaton, 1981. "Fiscal Policy, Inflation and the Accumulation of Risky Capital," Review of Economic Studies, Oxford University Press, vol. 48(3), pages 435-445.
  3. Heng-fu Zou, 1991. "The spirit of capitalism and long-run growth," Policy Research Working Paper Series 630, The World Bank.
  4. Philippe Weil, 1990. "Nonexpected Utility in Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 29-42.
  5. Fershtman, C. & Murphy, K.M., 1993. "Social Status, Education and Growth," Papers 8-93, Tel Aviv.
  6. Svensson, Lars E. O., 1989. "Portfolio choice with non-expected utility in continuous time," Economics Letters, Elsevier, vol. 30(4), pages 313-317, October.
  7. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  8. Grinols, E.L. & Turnovsky, S.J., 1992. "Risk, the Financial Market and Macroeconomic Equilibrium," Working Papers 92-01, University of Washington, Department of Economics.
  9. Robert J. Barro, 2003. "Determinants of Economic Growth in a Panel of Countries," CEMA Working Papers 505, China Economics and Management Academy, Central University of Finance and Economics.
  10. Grinols, Earl L & Turnovsky, Stephen J, 1998. "Risk, Optimal Government Finance and Monetary Policies in a Growing Economy," Economica, London School of Economics and Political Science, vol. 65(259), pages 401-27, August.
  11. Fischer, Stanley, 1975. "The Demand for Index Bonds," Journal of Political Economy, University of Chicago Press, vol. 83(3), pages 509-34, June.
  12. Gurdip S. Bakshi & Zhiwu Chen, 1996. "The Spirit of Capitalism and Stock-Market Prices," CEMA Working Papers 511, China Economics and Management Academy, Central University of Finance and Economics.
  13. Smith, William T, 2001. "How Does the Spirit of Capitalism Affect Stock Market Prices?," Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 1215-32.
  14. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  15. Turnovsky, S.J., 1989. "The Effects Of Taxes And Devidend Policy On Capital Accumulation And Macroeconomic Behavior," Discussion Papers in Economics at the University of Washington 891101, Department of Economics at the University of Washington.
  16. 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.
  17. Liutang Gong & Heng-fu Zou, 2001. "Direct preferences for wealth, the risk premium puzzle, growth, and policy effectiveness," CEMA Working Papers 53, China Economics and Management Academy, Central University of Finance and Economics.
  18. Fershtman, Chaim & Weiss, Yoram, 1993. "Social Status, Culture and Economic Performance," Economic Journal, Royal Economic Society, vol. 103(419), pages 946-59, July.
  19. Turnovsky, Stephen J, 1993. "Macroeconomic Policies, Growth, and Welfare in a Stochastic Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(4), pages 953-81, November.
  20. Grinols, Earl L. & Turnovsky, Stephen J., 1994. "Exchange rate determination and asset prices in a stochastic small open economy," Journal of International Economics, Elsevier, vol. 36(1-2), pages 75-97, February.
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