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The Adjustment of Consumption to Income Changes Across Chinese Provinces

Listed author(s):
  • Joseph DeJuan

    ()

    (Department of Economics, University of Waterloo)

  • Tony S. Wirjanto

    ()

    (School of Accounting & Finance and Department of Statistics & Actuarial Science, University of Waterloo)

  • Xinpeng Xu

    ()

    (School of Accounting and Finance, Faculty of Business, Hong Kong Polytechnic University)

Registered author(s):

    This paper examines a key stochastic implication of the canonical version of the permanent income model that new information about future income should give rise to an adjustment in consumption equal in magnitude to the adjustment in permanent income. Using data from 29 Chinese provinces, the empirical results are consistent with the model.

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    File URL: http://down.aefweb.net/AefArticles/aef170201DeJuan.pdf
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    Article provided by Society for AEF in its journal Annals of Economics and Finance.

    Volume (Year): 17 (2016)
    Issue (Month): 2 (November)
    Pages: 235-253

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    Handle: RePEc:cuf:journl:y:2016:v:17:i:2:dejuan
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    3. Anne Case, 1995. "Symposium on Consumption Smoothing in Developing Countries," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 81-82, Summer.
    4. Marcos D. Chamon & Eswar S. Prasad, 2010. "Why Are Saving Rates of Urban Households in China Rising?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(1), pages 93-130, January.
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    6. Chow, Gregory C., 2010. "Note on a model of Chinese national income determination," Economics Letters, Elsevier, vol. 106(3), pages 195-196, March.
    7. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    8. Charles Yuji Horioka & Junmin Wan, 2007. "The Determinants of Household Saving in China: A Dynamic Panel Analysis of Provincial Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2077-2096, December.
    9. Wang, Yan, 1995. "Permanent Income and Wealth Accumulation: A Cross-Sectional Study of Chinese Urban and Rural Households," Economic Development and Cultural Change, University of Chicago Press, vol. 43(3), pages 523-550, April.
    10. Murphy, Kevin M & Topel, Robert H, 2002. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 88-97, January.
    11. Dejuan, Joseph P & Seater, John J & Wirjanto, Tony S, 2004. "A Direct Test of the Permanent Income Hypothesis with an Application to the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1091-1103, December.
    12. Xinpeng Xu, 2009. "Consumption and aggregate constraints: new evidence from Chinese provinces," Applied Economics Letters, Taylor & Francis Journals, vol. 16(5), pages 481-484.
    13. Xinpeng Xu, 2008. "Consumption Risk-Sharing in China," Economica, London School of Economics and Political Science, vol. 75(298), pages 326-341, May.
    14. Chow, Gregory C, 1985. "A Model of Chinese National Income Determination," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 782-792, August.
    15. Hansen, Lars Peter & Sargent, Thomas J., 1981. "A note on Wiener-Kolmogorov prediction formulas for rational expectations models," Economics Letters, Elsevier, vol. 8(3), pages 255-260.
    16. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244.
    17. Julan Du & Qing He & Oliver M. Rui, 2011. "Channels of Interprovincial Consumption Risk Sharing in the People’s Republic of China," Microeconomics Working Papers 23202, East Asian Bureau of Economic Research.
    18. Jonathan Morduch, 1995. "Income Smoothing and Consumption Smoothing," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 103-114, Summer.
    19. Joseph P. Dejuan & John J. Seater & Tony S. Wirjanto, 2010. "Testing the Stochastic Implications of the Permanent Income Hypothesis Using Canadian Provincial Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(1), pages 89-108, February.
    20. Du, Julan & He, Qing & Rui, Oliver M., 2011. "Channels of Interprovincial Consumption Risk Sharing in the People’s Republic of China," ADBI Working Papers 334, Asian Development Bank Institute.
    21. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
    22. Meng, Xin, 2003. "Unemployment, consumption smoothing, and precautionary saving in urban China," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 465-485, September.
    23. Quah, Danny, 1990. "Permanent and Transitory Movements in Labor Income: An Explanation for "Excess Smoothness" in Consumption," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 449-475, June.
    24. Paxson, Christina H, 1993. "Consumption and Income Seasonality in Thailand," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 39-72, February.
    25. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
    26. Yingyi Qian, 1988. "Urban and Rural Household Saving in China," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 592-627, December.
    27. Aart Kraay, 2000. "Household Saving in China," World Bank Economic Review, World Bank Group, vol. 14(3), pages 545-570, September.
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