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

Lei Ning () and Yuqin Wang ()
Additional contact information
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

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2020, vol. 15, issue 3, 355-379

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.

Keywords: COVID-19; pandemic shock; household consumption; labor market; heterogeneousagentmodel; liquidity constraint; unemployment; quantitative analysis (search for similar items in EconPapers)
JEL-codes: E21 E24 E65 J65 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://journal.hep.com.cn/fec/EN/10.3868/s060-011-020-0015-4 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:15:y:2020:i:3:p:355-379

Access Statistics for this article

Frontiers of Economics in China-Selected Publications from Chinese Universities is currently edited by LONG Jie

More articles in Frontiers of Economics in China-Selected Publications from Chinese Universities from Higher Education Press
Bibliographic data for series maintained by Frank H. Liu ().