Lei Ning a, Yuqin Wang b
Author information
a Institute for Advanced Research, and Key Laboratory of Mathematical Economics of Ministry of Education, Shanghai University of Finance and Economics, Shanghai 200433, China
b Institute for Advanced Research, and Key Laboratory of Mathematical Economics of Ministry of Education, Shanghai University of Finance and Economics, Shanghai 200433, China
E-mail: ning.lei@shufe.edu.cn (Lei Ning), ning.lei@shufe.edu.cn (Yuqin Wang)
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.
COVID-19, pandemic shock, household consumption, labor market, heterogeneousagentmodel, liquidity constraint, unemployment, quantitative analysis
Lei Ning, Yuqin Wang. Quantitative Analysis of the COVID-19 Pandemic Shock to Household Consumption in China. Front. Econ. China, 2020, 15(3): 355‒379 https://doi.org/10.3868/s060-011-020-0015-4
