China’s Titling Parameter And The Dynamic Behavior Of The Current Account

The imbalance of China’s current account has always been the focus of academic and political circles. And its continuing surplus, not only making the domestic macro-control more difficult, increasing the pressure of RMB appreciation, it also brings china a lot of trade friction from our trading partners, just like the United States and European Union. This is not conducive to a healthy economy. However, the scope of the analysis of the China’s current account imbalances always focused on the foreign exchange reserves, exchange rates, money supply, domestic prices and other aspects, but there is no uniform interpretation. In addition, many scholars use the intertemporal model of current account to explain the imbalance of china’s current account, but mostly they were based on the smoothing perspective which can only explain the deficit of current account. Therefore, finding the key maters for the imbalances of current account becomes extremely urgent and important. This article will use the mainstream analysis method to research the dynamic relationship between Chinese consumer inclination coefficient and the current account. This is a new perspective, it will bring some theoretical and practical significance for us to recognize the imbalance of Chinese current account.This paper studies the dynamic relationship between Chinese consumer inclination coefficient and the current account from theoretical and empirical aspects. In theoretical research:this paper uses the intertemporal equilibrium analysis method based on the micro-foundation to obtain the optimal consumption solution, than decompose it into smoothing consumption and tilting consumption. The smoothing consumption is only influenced by income and the tilting consumption is only influenced by the tilting factors. Thus the current account can be involved into two parts. When the tilting factor makes people delay their consumption, the consumption path will be upward, then the tilting component of the current account is surplus. When the tilting factor makes people prefers consume in advance, the consumption path will be downward, then the tilting component of the current account is deficit. When the actual consumption is equal to the smoothing consumption, the current account is equal to the smoothing component of the current account, and the tilting component of the current account is balance.In the empirical research, this paper confirms the existence of the tilting component of the current account based on the co-integration relationship between the quarterly data of China’s national income and consumption1994-2011and obtained some of them, and then follow a similar trend to fill the vacancies values to obtain the whole tilting parameter. The results showed that:the rolling path of China’s tilting parameter is increased at first and then decreased, it reaches the maximum in the1997.4-2007.4, then gradually declined, but the tilting parameter remains greater than1, it means that people prefers the delayed-type consumption, so the tilting component of the current account is always surplus. I believe that it is caused by the expected expenditure pressures. Further, this article will research the relationship between the tilting parameter and domestic inflation, income distribution, the proportion of educational technology medical expenditure in the financial expenditure. The results indicate they are the Granger cause of the tilting parameter and there is negative correlation between them. In addition, to explain the decline reasons for the tilting parameter, this paper introduced the house price and consumer confidence index. The co-integration test results show that house prices and the tilting parameter are long-term negative, and the consumer confidence index and the tilting parameter have positive relationship.Finally, based on the empirical analysis, this paper considers that the tilting parameter is necessary for studying China’s current account. Because the surplus of the tilting component of the current account is greater than the deficit of the smoothing component of the current account, the actual current account becomes surplus. It shows that the tilting factors’ influence on the current account is stronger than the smoothing factors. So reducing the anticipation of expenditure will be better for reducing China’s current account surplus, rather than to increase the income. At last, this paper suggests that the Government can lower consumer’s rigid spending by reducing inflation, increasing the housing and perfecting the health and education systems.