Asset Price Volatility, Inflation Expectations And Consumption

With the disappearance of the demographic dividend gradually leads to the rising of the production costs, and the rapid appreciation of the RMB, the export which is the China’s economic development relies on heavily receives a serious of negative impact. In addition, the effect of government investment to stimulate economic growth also be weaken by the society, and they lead to the side effects, such as intensification of inflation and the overcapacity has been criticized by markets. These two factors led to China’s economic growth will face down the steps of the economic development. So how to change the mode of economic growth, at the same times make our future economic development to get rid of the traditional two carriages since-export and investment, so as to maintain China’s economic development continues to healthy and stable operation became the central theme of the government’s work. From the current situation, to expand domestic demand will be the future economic development of China’s main direction, as the engine of economic development, which own the sustainability and strategic significance is obvious.Therefore, in such cases, we choose the most core content of domestic demand-consumer needs of the residents as a starting point, and choose the two vital financial assets held by Chinese residents-stocks and real estate assets, to analyse which two fluctuations in asset prices with consumer spending residents. At the same time, taking into account inflation in recent years has become another important factor affecting consumer spending, we selected as the inflation expectations of residents to study the effects of variable mechanism, combining with residents’ disposable income, these four variable relationships with our residents spending a theoretical and empirical analysis.Firstly, from the theoretical point of view of the stock market, real estate market mechanism for the consumer, and to analyze the impact of the transmission mechanism. In theory confirmed they are relevant, we measured by applying the relevant test empirically confirmed these correlation exists.Secondly, we further use the state-space model and the impulse response function for in-depth analysis. We argue that the current stock of residents’role which in promoting the consumption of assets is very weak, there may even be a slight negative impact. While the residents of real estate assets’role in promoting the consumption of more obvious. As another important factor, the positive role of inflation expectation in boosting consumption of residents is relatively obvious. But whose self-reinforcing effect and amplification will on the existence of a threat to the stability of the price level, we must try to avoid these occurrence.Finally, according to the test results obtained, we propose the following policy recommendations:(1) we will need adjust the income distribution, make efforts to improve residents’income levels and promote residents immediate consumption; (2) we will continue to improve our policies and systems related to the stock market for investors to have the reasonable return; (3) we need to maintain the smooth operation of real estate prices, make rational development and regulation of the real estate market; (4) we need a reasonable guide to inflation expectations of residents to prevent the huge volatility in the short term.