Study On Financial Market And Residents' Intertemporal Consumption Behaviors In Transition Economy

Intertemporal consumption optimization under uncertainty is regarded as the research theme in modern consumption theory. If consumers allocate financial assets through financial market, we face the problem that consumers' intertemporal consumption choices decide the prices of financial assets, or price fluctuations of financial assets result in the adjustment of optimal consumption plan. The correlated studies on this problem constitute the theme of financial economics. Therefore, modern Financial Economics and modern Consumption Economics had been inextricably linked. The research topic of this paper- Study on financial market and resident's intertemporal consumption behaviors in transition economy should be classified in the research areas of Consumption Economics and Financial Economics.Entering this century, with the deepening of Chinese economy transition and the rapid and stable economy growth, resident's income increased rapidly. Intertemporal consumption obviously features the Chinese resident's consumption behaviors. How to utilizing the theories of western Consumption Economics and Financial Economics with the combination of Chinese transition economy features when studying the resident's intertemporal consumption behavior in China is quite important and with great practical significance in explaining the specific phenomenon of China's financial market and consumer's behaviors and then to further guide resident's sensible consumption as well as promote economy development. When step to the intertemporal consumption period, resident's requirements to financial assets start to increase and they rely more and more on the finance market. However, finance market in transition economy not only gaps from the ideal market described in western Economics in the view of static state, but also the finance reform will deepen furtherly in accord with economy transition. Therefore, finance market in transition economy will affect a lot on resident's intertemporal consumption. The fit point of this paper is to study resident's intertemporal consumption behavior in transition economy in the view of finance market.The development vein of consumption function theory has been cleared up firstly in this paper, and then expended the consumption function theory to the frame of intertemporal consumption theory. Namely, any type of consumption function might be a special case of the intertemporal consumption optimization model, and could be inferred from the model. The above model, as the basis of modern Consumption Economics and Financial Economics, is the main theory basis of the researches in this paper. Based on the intertemporal consumption optimization, Lucas inferred the Consumption Capital Asset Pricing Model (CCAPM), which closely links consumption and financial market (financial assets) together. CCAPM perfectly describes the relations between consumption and the financial market; it is an important elicitation to this paper's research subject. But as a result of the complexity of transition economy and transition financial market, the completely ideal suppositions of CCAPM do not conform to the actual situations of transition economy and transition financial market. Even if the improved CCAPM models by Epstein & Zin, Weil, Bakshi & Chen, Campbell & Cochrane and Cocherlakota etc. are also unable to adapt in the transition economy environment. Hence, it's understandable that the conclusions are self-contradictory or obviously different from each other in some empirical researches on Chinese financial market, such as the equity premium puzzle, the wealth effect, the stock market availability and so on.Uncertainty is the important characteristic of transition economy, displaying in the system vicissitude uncertainty, the consumers' limited rationality as well as the information incompleteness with asymmetry. Uncertainty has important influence on resident's intertemporal consumption in transition economy. This kind of influence surpasses the situation in the general sense, which uncertainty is mainly described as income uncertainty that could be measured and processed through the mathematical statistic way. Therefore, this paper analyzed the different types of uncertainty that residents will face during intertemporal consumption in transition economy. The influence of expenditure uncertainty is especially studied. This paper also studies the uncertainty characteristics that Chinese residents face in different periods of China's economic transformation.This paper studies the influences of financial market to resident's intertemporal consumption from the following four aspects:First, this paper studies the relations between consumers and the financial market in general sense. It studies the relations of consumers and the formation and development of financial market from historical view. It concluded that the formation and development of financial market depend on consumers and analyzed the reasons why consumers are in a relatively weak position with the rapid development of modern finance. In transition economy, the phenomenon is more visible, and both economic transformation and reform of the financial system might cause consumers relatively weak. Hence, the shortage of financial markets forms the external constraint for resident's intertemporal consumption, with income constraint as the inner constraint, limits residents consumption plan. Then, the paper analyzes the reason that transition countries adopt financial constraint policy, and how the policy affects residents' intertemporal consumption.Second, the benchmark of intertemporal consumption optimization model, namely how to select risk-free rate in transition economy is discussed. According to Lucas Tree Economy Model, the article estimates the theoretical risk-free interest rates, and analyzes the differences between theoretical risk-free rate and actual risk-free interest rate. Then, how Chinese residents choose actual risk-free interest rate when they make intertemporal consumption plan is studied.Third, the paper studies consumer selection behaviors under financial constraints, and influences of Chinese money market, capital market on the resident's intertemporal consumption. By means of econometric method, this paper makes empirical researches on how China's stock market fluctuations affect residents' intertemporal consumption, namely the wealth effect of Chinese stock market. The results show: since restrictions from the financial market, The wealth effects of Chinese stock market is non-symmetric, that is, residents will not increase consumption when stock prices rise, and will evidently reduce consumption when stock prices decrease.Fourth, the paper discusses the actual intertemporal consumption behaviors of resident in transition economy. It indicates that the imperfections of financial market in transition economy result in the different consumption behaviors from residents in developed countries. The former take consumption and investment as two divisive parts, namely two different mental accounts, while the latter take them as a uniform component of the consumption plan. Hereafter, it studies that how the split share structure reform, which was implemented in Chinese stock market from 2005, affects resident's intertemporal consumption.In the latter part of this paper, it studied the affects of financial reforms in transition economy, that is, financial deepening and financial liberalization on resident's intertemporal consumption. The financial deepening and financial liberalization not only behaves as the tide of world finance development, but also an important step of the development and perfection of financial market in transition economy. With the deepening of transition economy, financial liberalization become the inevitable trend and will bring dynamic affect on resident's intertemporal consumption. Financial liberalization makes it possible for consumer to invest in the global capital market and realize the global allocation of household assets. In this way, the strike by system risk of domestic economy could be reduced.In another way, some empirical researches show that the financial opening up could also lead to fluctuant consumption increase in developing countries. According to the research of Mr. Andrei A Levchhenko, in developing countries which the two restrictions, that is, first finance system is not so developed, second, not all the resident are available to the international capital market, exist simultaneously, the financial opening up could lead to fluctuant consumption increase. The reason is that the economy strike of opening up could lead to reduced income and financial assets loss.This paper focuses on the research that financial liberalization influences consumption, and discusses how liberalization of interest rates and exchange rate liberalization leads to the consumers' welfare change.In chapter eight, the paper discussed how to maximally meet the requirements of residents' intertemporal consumption in the transition process of economic and financial reforms, including smoothening household consumption and enhancing consumers' welfare. This part analyzes the connections and relations between financial market and resident's consumption with the financial system function theory in four progressive steps.Finally, based on the above study and analysis, this paper provided some policy suggestions to meet the requirements of resident's intertemporal consumption as well as enhance consumers' welfare. First of all, accord with the main features of the uncertainty that the consumers will face in various period during transition process, provide social security measures with strong pertinence to reduce or eliminate the uncertainty caused by consumption fluctuation. Secondly, enhance the transparency of economy policy and information to reduce resident's anticipation of future uncertainty. Third, resident's intertemporal consumption should be considered during financial reform and innovation. The financial innovation products and reform of financial market should in the view of satisfying resident finance requirement. Fourth, orderly advancement of financial deepening and liberalization is quite necessary in killing the strike to consumption by finance reform. Fifth, the finance supervision departments should strengthen education to consumers. Improving consumers' ability in reasonable consumption and investment is quite important in realizing consumer's self-effect-maximization.