Research on Consumption Model about Urban Households Based on Keynes' Absolute Income Hypotheses in China

According to the absolute income hypotheses of J. M. Keynes, it constructed the consumption model of Chinese urban households by using the statistical data from 1990 to 2007, and studied the long-term equilibrium as well as short-term fluctuations between per capita annual living expenditure and annual per capita disposable income of urban households in China. The result of Granger causality test showed that the disposable income Granger caused the living expenditure. The result of cointegration test showed that there was a long-term stable equilibrium relationship between the living expenditure and disposable income. Marginal preference of consumption was 0.69. Spontaneous consumption was RMB 271.93 yuan. Error correction model showed that the short-term fluctuations of income levels had a significant positive effect on living expenditure. If the current consumption level has deviation from the long-term equilibrium value by RMB 1 yuan, it will be corrected by RMB 0.52 yuan next year.