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A structural model of consumption: An application to China during the global financial crisis

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  • Voon, Jan P.
  • Voon, Jan Cham
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    Abstract

    In this paper, we develop a structural model of consumption by incorporating psychological constructs which constitute important antecedents of household consumption and provide crucial structural linkages to the mental accounting evaluation of saving or consumption. Our model is tested using structural equation modeling (SEM). The model is applied to China for measuring consumption expenditure under uncertainty emanating from the 2008 global financial crisis. An empirical test using 9784 new Chinese household survey data show that our structural model is a significant improvement over the existing behavioral life cycle model, as it is able to capture the psychological states affecting different groups of consumers such as employed workers and unemployed retirees. Our new structural model of consumption fits the data very well. The results have important implications for public policy assessment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

    Volume (Year): 41 (2012)
    Issue (Month): 3 ()
    Pages: 284-288

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    Handle: RePEc:eee:soceco:v:41:y:2012:i:3:p:284-288

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    Web page: http://www.elsevier.com/locate/inca/620175

    Related research

    Keywords: Structural behavioral model; Psychological states; Consumption; Emotion; China; Financial crisis;

    References

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    1. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-43, October.
    2. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, Octomber.
    3. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, with and without Liquidity Constraints," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 23-45, Summer.
    4. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-92, May.
    5. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
    6. Claessens, Stijn & Kose, Ayhan & Terrones, Marco E., 2008. "What Happens During Recessions, Crunches and Busts?," CEPR Discussion Papers 7085, C.E.P.R. Discussion Papers.
    7. Bechara, Antoine & Damasio, Antonio R., 2005. "The somatic marker hypothesis: A neural theory of economic decision," Games and Economic Behavior, Elsevier, vol. 52(2), pages 336-372, August.
    8. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
    9. George Loewenstein, 2000. "Emotions in Economic Theory and Economic Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 426-432, May.
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    Cited by:
    1. Li, Fangyi & Song, Zhouying & Liu, Weidong, 2014. "China's energy consumption under the global economic crisis: Decomposition and sectoral analysis," Energy Policy, Elsevier, vol. 64(C), pages 193-202.

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