Dynamic Efficiency in an OLG Model With the Spirit of Capitalism

Yanzhao Liu (), Liutang Gong (), Jianjian Liu () and Chan Wang ()
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Yanzhao Liu: Jinhe Center for Economic Research, Xi'an Jiaotong University
Liutang Gong: Guanghua School of Management and LMEQF, Peking University
Jianjian Liu: School of Finance, Shandong University of Finance and Ecoonomics
Chan Wang: School of Finance, Central University of Finance and Ecoonomics

Annals of Economics and Finance, 2022, vol. 23, issue 2, 315-328

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).

Keywords: The spirit of capitalism; OLG model; Dynamic inefficiency (search for similar items in EconPapers)
JEL-codes: B10 E22 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2022:v:23:i:2:liu:gong:liu:wang

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