The Spirit of Capitalism, Precautionary Savings, and Consumption

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 sp...

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Bibliographic Details
Published in:Journal of money, credit and banking credit and banking, 2009-03, Vol.41 (2-3), p.543-554
Main Authors: LUO, YULEI, SMITH, WILLIAM T., ZOU, HENG-FU
Format: Article
Language:English
Subjects:
Aggregate income
C61
Capitalism
Capitalist Systems: Political Economy P160
Capitalization
Coalition governments
Consumer behaviour
Consumer economics
Consumer preferences
Consumer psychology
Consumption
consumption and saving behavior
Consumption function
D91
E21
Evaluation
Forecasts and trends
Investment analysis
Macroeconomics
Macroeconomics: Consumption
Market trend/market analysis
Permanent income hypothesis
Precautionary savings
Preferences
Prime ministers
Random walk theory
Saving
Savings
Securities analysis
Shorter Papers, Discussions, and Letters
Studies
the sensitivity and smoothness of consumption
the spirit of capitalism
Wealth
Wealth E210
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Summary: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.
ISSN:0022-2879
1538-4616
DOI:10.1111/j.1538-4616.2009.00221.x