Abstract In the paper I have established the dynamic panel model including the Habit Formation, Uncertainty and Liquidity Constraints and empirically tested the model by using the provincial level panel data from 1998 to 2008. The result has shown that the Habit Formation has a remarkable influence on the consumption of the rural and urban inhabitants; the Uncertainty has a distinct influence on the consumption of rural inhabitants, but it has an indistinctive influence on the rural inhabitants; the consumption of rural and urban inhabitants has excessive sensitivity; the consumption of urban inhabitants supports'the Prospect Theory' but fails to support"the Liquidity Constraint theory", and the consumption of rural inhabitants supports the theory of "Short Termism".
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Received: 18 December 2009
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