How Resident Assets Affect Consumption?

Consumption demand,especially the weak increase of household expenditure demand has become one of the issues that restrict the rapid development of economy in China.So studying what factor affect consumption is important for how to expand domestic demand.With the recent advent of its stock market and real estate market turbulence,the issue of the linkage between household consumption and asset is expected to be a perennial source of concern of investigation.This paper employs quarterly data of urban China's household income,assets and consumption between 1998Q4 and 2007Q4 to examine the effects of asset changes on aggregate expenditures.Adopting the VECM econometric framework,I demonstrate that wealth effect of assets remarkably exists in china urban.I verify that there is one and only one long cointegrating elationship between income, consumption and assets and estimate the long-run consumption elasticity of assets as 0.51/ In short term,there is only assets have error-correct behavior;he results of variance decomposition analysis show that assets increarsing contribute to the fluctuation of consumption as shocks last.When decompose assets as financial assets and housing assets,I demonstrate that wealth effect of financial assets and housing assets both remarkable exist in china urban.I verify that there is one and only one long cointegrating relationship between income,consumption,financial assets and housing assets,and estimate the long-run consumption elaticity fo financial assets as 0.28,consumption of elasticiy of housing assets as 0.56.In short term,there is financial assets,housing assets and income have error-correct behavior;the results of pairwise Granger causality Tests show that financial assets Granger cause consumption,housing assets also granger cause consumption.