Uncertainty， Liquidity Constraints and Household High Saving in Ch

ina

SUFE

Jieping Zhang

Background

• During1978-2008,GDP increased at a rate of 9.6% annually on average，meanwhile Savings of residents increased at a rate of 18.27% annually on average.

• Net income of rural residents increased by 5.8 times， Disposable income of urban residents increased by 7.5 times, Savings of residents increased 153 times.

• Insufficient domestic demand is the principal problems in the operation of China's economy

Two main contributions of this Paper

(1). Analies the liquidity constraints and uncertainty in accounting for the Chinese household consumption behaviour.

(2). Using quantile regression analies the behavior of different consumer groups.

00

1 t

t

u >0,u <0,u >0.

individual's behavior:

( ) [ ( )]

con (1 )( )

cash in hand x =

liquidity con x

otal value of assets owned at

jt j

j

t t t t

t t

t t

t

MaxU t E u c

a r a w c

a w

c

a

strai nts：

strai nts：

: t

0 1 0 1

21

interest

beginning 0

: labor income

[ , ], 0,

walk Subject to such a process :

(0, )

t

t t

t

t

t t t t w

a

w

w w w w w

w w N

r real rate, : ，

w i s random ，

，

t t t t+j

t

binding,

denote the instantaneous marginal utility of

money by Consumption in periods t

and t + j must satisfy

( ) max[ (x ) (1 )E ( )]

if liquidity n int s is not

( )

co

tc r c

c

：

，

，

stra

t+j t

t t

1( ) ( ) ( )

(1 )

binding

Eular Equation

j 0,1, 2,...

if liquidity int s is

con f (x )

j

t

t

u E ur

c c

c

：

：

，

stra

1CRRA

( ) / (1 ),t tu c c

Suppose real i nterest rate i s Normal di stri buti on,

Consumpti on subj ect to a l ogari thm normal di stri buti on.

（ ）uti l i ty functi on： combi ne

Eul ar Equati on. The the vari ance and co th

1t t tc r

vari ance of e

resi dual i s constant. Got：

the i ncrease of consumpti on onl y

rel ated to the current i nterest rate. the i ncrease of

consumpti on change i n i nterest rates depends on the

,

sensi t i vi ty of the i ntertemporal rate of substi tuti on

• There were two types of consumers, a class of consumers in accordance with the life cycle and permanent income hypothesis to choose the path of consumption, and the other is to use their experience of consumers are spending their income (short-type). The second category accounts for the proportion for

1

2 2 l

1(1 ) (1 ) (1 )t t t

t t t

c r

C Y Y

The consumpti on functi on of the fi rst

category of consumers:

The consumpti on functi on of the second

category of consumers:

ogari thmi c form i s

，

2 2 1t t tc y y

0 1 2

0 2

1

(1 ) (1 ) /

(1 ) ,

t t t t

t t

c y r

The aggreted consumpti on functi on of

consumers:

and i s di ff erent，

but both determi nati on of the proporti on

of the l i qui di

， ，

ty constrai ns consumers.

( )

1 1ln ( )

t t t

t

c Var c

r ar c

I f the vari ance and covari ance of the resi dual

i s not constant, propose：

i s the condi t i onal

vari ance of the growth of the next i ssue

consumpti o

，V

0 1 2 3

( )

( )

t

t t t t t

Var c

c y r Var c

n based on the current avai l abl e

i nformati on. We choose as the uncertai nty.

Fi nal l y, We construct the econometri c model :

| |

x

min (1 )i i i i

i i i ii y x i y x

i i

y x y x

y

Quanti l e Regressi on：

i s the expl ai ned vari abl e， i s expl anatory

vari bl e, i s quanti l e val ues， i s the parameters

to be esti mated. var

.

(0,1),

i es wi th the val ue of

represents the data on or bel ow the

regressi on l i ne or pl ane of the surface hel d the

percentage of the whol e sampl e data.