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China's economic fluctuations and consumption smoothing: Is consumption more volatile than output in China?

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  • Zhao, Min
  • Hsu, Minchung

Abstract

This paper provides a fundamental study of China's consumption and output fluctuations. The most recent literature reports that, in the post-1978 period, detrended consumption is significantly more volatile than detrended output in China. This indicates the inability to impose consumption smoothing. However, in those previous studies, consumption of durables, which has some features of capital, as discussed in the real business cycle literature, was not separated from private consumption. This paper is the first to estimate consumer durables for China and their service values following the method introduced in Cooley and Prescott (1995). We adjust the consumption measure to make it consistent with the real business cycle literature, and find that consumption of durables is much more volatile than output, but non-durable consumption is less volatile than, and less correlated with, output that provides evidence that supports consumption smoothing in China.

Suggested Citation

  • Zhao, Min & Hsu, Minchung, 2012. "China's economic fluctuations and consumption smoothing: Is consumption more volatile than output in China?," China Economic Review, Elsevier, vol. 23(4), pages 918-927.
  • Handle: RePEc:eee:chieco:v:23:y:2012:i:4:p:918-927
    DOI: 10.1016/j.chieco.2012.04.012
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    References listed on IDEAS

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    1. Wei, Shang-Jin & Boyreau-Debray, Genevieve, 2004. "Pitfalls of a State-Dominated Financial System: The Case of China," CEPR Discussion Papers 4471, C.E.P.R. Discussion Papers.
    2. He, Qing & Tai-Leung Chong, Terence & Shi, Kang, 2009. "What accounts for Chinese Business Cycle?," China Economic Review, Elsevier, vol. 20(4), pages 650-661, December.
    3. Uhlig, H.F.H.V.S. & Ravn, M., 1997. "On Adjusting the H-P Filter for the Frequency of Observations," Discussion Paper 1997-50, Tilburg University, Center for Economic Research.
    4. Chong-En Bai & Chang-Tai Hsieh & Yingyi Qian, 2006. "The Return to Capital in China," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 37(2), pages 61-102.
    5. Chow, Gregory C & Li, Kui-Wai, 2002. "China's Economic Growth: 1952-2010," Economic Development and Cultural Change, University of Chicago Press, vol. 51(1), pages 247-256, October.
    6. Gregory C. Chow, 1993. "Capital Formation and Economic Growth in China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 809-842.
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    Cited by:

    1. Hao, Yu & Peng, Hui, 2017. "On the convergence in China's provincial per capita energy consumption: New evidence from a spatial econometric analysis," Energy Economics, Elsevier, vol. 68(C), pages 31-43.
    2. Minchung Hsu & Junsang Lee & Min Zhao, 2020. "Economic fluctuations, volatility changes and the role of government spending in China: A structural analysis," Pacific Economic Review, Wiley Blackwell, vol. 25(4), pages 512-538, October.
    3. Rui Zhou, 2022. "Sustainable Economic Development, Digital Payment, and Consumer Demand: Evidence from China," IJERPH, MDPI, vol. 19(14), pages 1-20, July.

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    More about this item

    Keywords

    Consumption smoothing; Economic fluctuations; Consumer durables; China;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • N15 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Asia including Middle East

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