Empirical Research of Chinese Residents’ Consumption Behaviors Based on Consumption Functions

Abstract

This paper simply expands two famous consume function s referring to macro-economics: Keynesian consumption function and Life-cycle consumption function ; attempting to introduce the empirical proxy variance of irrational facts: money illusion and over-reaction, we rebuild a new Keynesian consumption model and Life-cycle consumption model, both of which are based on the hypothesis of resident’s irrational behavior. Then we use the new model to empirical ly test the macroeconomic years ’ data of China’s urban residents from 1978 to 2013 and China’s rural residents from 1985 to 2013. The empirical results show that all residents of China are irrational, however, the reasons of cause irrational consumption are different, and the urban residents may be for money illusion, but the rural residents may show over-reaction to price volatility. Finally, we give theory analysis about the differences of the two irrational consumption behavior s and the results of the paper.