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Quantitative Analysis of the COVID-19 Pandemic Shock to Household Consumption in China

Author

Listed:
  • Lei Ning

    (Institute for Advanced Research, and Key Laboratory of Mathematical Economics of Ministry of Education, Shanghai University of Finance and Economics, Shanghai 200433, China)

  • Yuqin Wang

    (Institute for Advanced Research, and Key Laboratory of Mathematical Economics of Ministry of Education, Shanghai University of Finance and Economics, Shanghai 200433, China)

Abstract

We study the impact of the COVID-19 pandemic shock on household consumption in China. Using household survey data, we find that the proportion of liquidity-constrained households increases quickly, but the constraint levels vary across distinct groups. We build a heterogeneous agent life cycle incomplete market model to analyze the long-run and short-run effects of the pandemic shock. The quantitative results reveal a slow recovery of consumption due to three reasons: hiking unemployment rate, declining labor productivity, and worsening income stability. The hiking unemployment rate plays the key role in households' consumption reduction since it simultaneously leads to a negative income effect and upsurging precautionary saving motives. Our paper highlights the importance of maintaining a stable labor market for faster recovery.

Suggested Citation

  • Lei Ning & Yuqin Wang, 2020. "Quantitative Analysis of the COVID-19 Pandemic Shock to Household Consumption in China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 15(3), pages 355-379, September.
    • Handle: RePEc:fec:journl:v:15:y:2020:i:3:p:355-379
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-011-020-0015-4
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    Citations

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    Cited by:

    1. Lee, Hyun & Zhao, Kai & Zou, Fei, 2022. "Does the early retirement policy really benefit women?," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 330-345.

    More about this item

    Keywords

    COVID-19; pandemic shock; household consumption; labor market; heterogeneousagentmodel; liquidity constraint; unemployment; quantitative analysis;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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