Research On The Macroeconomic Effects Of Household Debt From The Perspective Of Aggregate Deman

Chinese household debt has risen sharply in recent years.The rise in household debt has attracted a lot of attention.The State Council mentioned in “Several Opinions on Improving the System and Mechanism for Promoting Consumption and Further Stimulating Residents’ Consumption Potential” that it is necessary to “grasp the relationship between maintaining the reasonable leverage level of residents and the reasonable growth of consumer credit” in 2018.The China Financial Stability Report issued by the People’s Bank of China in 2018 and 2019,stressed that “paying close attention to the changes in the debt risk of the household sector from a macro-prudential perspective and preventing the excessive rise of the debt level of the household sector”.At the beginning of 2020,China Banking and Insurance Regulatory Commission clearly pointed out that “restraining the excessive growth of household leverage ratio”.Thus,the problem of China’s household debt cannot be ignored.Employment matters the most in people’s lives.Faced with the downward pressure of the economy and the impact of the COVID-19 pandemic,China’s employment situation is grim,and “stabilizing employment” has become the top priority of the Chinese economy.China has a population of over 1.4 billion and a labor force of nearly 900 million.Solving the problem of employment is always a major task for China’s economic and social development.Maintaining a stable overall level of employment and promoting the optimization and upgrading of the employment structure are not only the bottom line for high-quality economic development in the new era,but also an important foundation for consolidating steady economic development.As one of the three driving forces of China’s economic growth,export plays an important supporting role in the national economy and is an important driving force for China’s economic development.Report on the Work of the Government(2023)proposed to “continue to play the supporting role of imports and exports on the economy”.However,the global economic downturn has inhibited the growth of China’s export,and combined with the impact of the China-Us trade war and the epidemic,China’s export faces great challenges.Based on the existing research,this paper discusses the influence of household debt on labor market and the influence of foreign household debt on China’s export in the context of increasing household debt risk,severe employment situation and slowing export growth in China’s economy.Using China’s provincial panel data and global experience data,this paper follows “household debt—aggregate demand—macro economy” to conduct research.This not only helps to correctly understand the relationship between “stabilizing leverage” and “stabilizing employment” in the new development stage,but also helps to accurately judge the relationship between the global household debt cycle and China’s export cycle in the new development pattern.This paper sorts out and summarizes relevant domestic and foreign researches from three aspects: the causes of the rise of household debt,the relationship between household debt and consumption,and the impact of household debt on the real economy.On this basis,the two-period household consumption decision model is constructed to capture the channels of mortgage effect and wealth effect of rising housing prices on household debt and the channels of borrowing cost of household debt caused by falling interest rates,and to clarify the impact of household credit on household consumption demand from the micro level.Furthermore,by constructing a small open economy model,this paper discusses the influence and mechanism of household debt on labor market and foreign trade market,and puts forward a theoretical hypothesis on this basis.After theoretical analysis,this paper mainly carries out systematic empirical analysis based on China’s provincial panel data and global transnational empirical data.Firstly,applying China’s provincial panel data from 2013 to 2019 and using the instrumental variable method,we find that a rise in household leverage significantly increases total employment and regional trade-sector employment,but significantly reduces employment in the cross-regional trade sector.Further mechanism analysis shows that a rise in household leverage increases household demand,and consequently results in an expansion of regional trade sector along with increases of labor demand and wage.As labor cost rises,production and employment in the cross-regional trade sector decrease due to the competition from other regions or countries in this sector.Secondly,on the basis of the above experience in China,using the non-equilibrium panel data of 39 economies from 1978 to 2018,we comprehensively investigate the relationship between household leverage changes,labor employment fluctuations and relative employment fluctuations.It is found that the household leverage change will increase total employment and non-tradable sector employment,but will inhibit the tradable sector employment growth,and increase the non-tradable sector relative to tradable sector employment growth,which is consistent with the above empirical evidence in China.Moreover,the impact of household debt changes on total employment is significantly different among regions and industries.Specifically,the positive effect of household debt expansion on total employment is mainly manifested in developed economies,and the effect is not significant in developing economies.Moreover,household debt expansion mainly reduced employment growth in manufacturing and boosted employment growth in construction and housing.Mechanism analysis shows that household debt expansion will lead to the increase of prices in the non-tradable sector and not affect the tradable sector,but has the same impact on the change of labor wages in the two sectors.This evidence also supports the aggregate demand channel of household debt.That is,the increase in aggregate demand caused by the expansion of household debt increases prices in the non-tradable sector and increases the demand for labor in order to expand production,which pushes up labor wages in the non-tradable sector.Since labor in the labor market can move between sectors,the rise of wages in the non-tradable sector increases the labor pressure in the tradable sector and raises the labor cost in the tradable sector.The rise in production costs makes the tradable sector less competitive in international markets,leading to a decline in exports and an increase in imports.Further analysis suggests that household debt expansion has a negative impact on both total and sector employment in the medium term,which is consistent with research showing that household debt expansion leads to recessions in the medium and long term(Mian et al.,2017).Finally,it explores the influence of foreign household debt on China’s export growth.China has played a more and more important rule in the world economy since the reform and opening-up,but some countries raise the concern of “China threat theory”and criticize the import from China can worsen the domestic labor market.Some papers also treat China export as “China Shock” and argue the countries of import have China Syndrome.In this paper,we offer a different explanation about the growth of China’s export and highlight the aggregate demand channel induced by the global household debt cycles.That is,when households wealth increase,they can consumption more by exploring household debt,when this demand expansion meets international trade,then the China’s export increases.Using the data of transnational credit and China’s exports from 1979 to 2018,this paper finds that,with other factors unchanged,an increase of1 percentage point in foreign household debt will increase China’s exports by about0.428 percentage points in the same period.This result is established before and after China’s accession to the WTO and the financial crisis,and the different development level or region.This paper also discusses the channel and internal mechanism of the impact of foreign household debt on China’s export growth.Using the panel VAR model,it is found that both rising housing prices and falling interest rates will expand household debt,and the resulting increase in consumption will promote the country’s imports to other countries in the world,including China.The finding is consistent with the result estimated by the 2SLS method using housing prices and interest rates as household debt instrument variables.In addition,this paper also finds that although household debt expansion will boost China’s export growth in the short term,it is not conducive to China’s export growth in the long term.This paper further discusses the impact of the export increase caused by the expansion of foreign household debt on China’s domestic economy,and finds that the external demand shock will stimulate domestic investment and reduce household consumption.Accordingly,this study proposes the following policy recommendations:(1)Focusing on stabilizing household leverage,preventing the risk of rising household leverage,and keeping household leverage within a reasonable range;(2)Expanding channels for household investment and financing,guiding funds to flow to the real economy,and adhering to the position that houses are for living in,not for speculation;(3)Accelerating the development of a unified national market and strengthening domestic demand as a driving force for economic growth.