Household Finance in China

Russell Cooper and Guozhong Zhu

No 23741, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses a lifecycle model to study household finance in China, focusing on the high savings rate, the low stock market participation rate and the low share of stocks in wealth. We control for important regime changes in China in the estimation of structural parameters, and examine their impacts on household finance patterns. Relative to the US, the distinctive financial choices of households in China are driven by institutional factors, such as labor market risks and costs of asset market participation, as well as by differences in preferences. Specifically, large stock market participation and adjustment costs along with high stock market volatility in China lead to the relatively low stock market participation rate and the low share of stocks in wealth conditional on participation, but they contribute little to the high savings rate. The high savings rate in China is driven mainly by high labor market risks and the patience of households. Given the estimated differences between China and the US in preferences, the model predicts that households in China would continue to save more than their US counterparts even if institutional differences disappear.

JEL-codes: E21 G11 P2 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-cna, nep-dge, nep-mac and nep-tra
Note: EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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