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The Spirit of Capitalism, Precautionary Savings, and Consumption
Author(s) -
LUO YULEI,
SMITH WILLIAM T.,
ZOU HENGFU
Publication year - 2009
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2009.00221.x
Subject(s) - capitalism , consumption (sociology) , economics , asset (computer security) , neoclassical economics , preference , precautionary savings , smoothness , market economy , microeconomics , keynesian economics , sociology , political science , social science , law , computer security , recession , politics , computer science , mathematical analysis , mathematics
Recent research has shown that the “spirit of capitalism”—a preference for wealth itself, in addition to consumption—has 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.