The Spirit of Capitalism and Expectation Driven Business Cycles

Lilia Karnizova

No 0804E, Working Papers from University of Ottawa, Department of Economics

Abstract: While news shocks are believed to be instrumental in explaining business cycles, many existing models fail to predict an economic boom in consumption, investment, employment, output and the stock market in response to good news about future productivity. This paper proposes and evaluates a model with the intrinsic desire for wealth accumulation, or ‘the spirit of capitalism’ hypothesis, which generates the aforementioned responses. Restrictions for the existence of expectation driven business cycles are derived analytically. The restrictions are confirmed by an estimated version of the model. The proposed preference specification is supported with additional empirical evidence.

Keywords: Spirit of Capitalism; News Shocks; Business Cycles (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2008
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The spirit of capitalism and expectation-driven business cycles (2010)
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