The Influence of Economic Policy Uncertainty and Habit Formation on Rural Residents’ Consumption

Chen Shuyue(Yangzhou University)

Abstract

Based on the household survey data of rural residents in 30 provinces (cities, districts) of China from 1995 to 2019, this paper constructs an econometric model of farmers’ consumption behavior with habit formation and economic policy uncertainty, and makes an empirical analysis of farmers’ consumption behavior by using sys-gmm estimation method. The results show that: since the reform and opening up, the changes of Chinese farmers’ consumption behavior not only show excessive sensitivity to income changes on the whole, but also show a significant habit forming effect, and the existence of habit effect will reduce the impact of economic policy uncertainty on consumption; there is a large gap between regions, and the consumption in the western region is affected by the uncertainty of economic policy, the impact is greater. Therefore, the government should pay attention to the impact of economic shock on consumption, maintain the systematicness and stability of the policy, enhance the stability, continuity and accuracy of the policy, drive the development of the western region, build a long-term policy mechanism to promote the sustained and rapid increase of farmers’ income, and further change farmers’ consumption concept.

Keywords

Uncertainty of economic policy; Habit formation; Consumption of rural residents

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DOI: http://dx.doi.org/10.26549/jfr.v5i1.6510