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Money, Growth, and Welfare in a Schumpeterian Model with the Spirit of Capitalism

Qichun He (), Yulei Luo (), Jun Nie () and Heng-Fu Zou ()
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Qichun He: China Economics and Management Academy, Central University of Finance and Economics
Jun Nie: Research Department, Federal Reserve Bank of Kansas City

No 615, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: According to Schumpeter (1934), entrepreneurs are driven to innovate not for the fruits of success but for success itself. This description of entrepreneurship echoes Weber's (1958 ) description of the "spirit of capitalism," which states that people enjoy the accumulation of wealth irrespective of its effect on smoothing consumption. This paper explores the implica- tions of the spirit of capitalism on monetary policy, growth, and welfare in a Schumpeterian growth model. Different from the existing literature, we show that money is not superneutral in the long run and it could promote economic growth when the spirit of capitalism is strong. Furthermore, we show the optimal nominal interest rate decreases with the strength of the spirit of capitalism, potentially supporting a negative interest rate. Finally, our calibrated model suggests that the spirit of capitalism explains an important share (about one-third) of long-run growth in the United States.

Pages: 55 pages
Date: 2020
New Economics Papers: this item is included in nep-ent, nep-fdg, nep-gro and nep-mon
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