| Abstract: | This paper identifies two saving puzzles obtained from the Chinese Urban Household Survey data from 1990 to 2006. The first saving puzzle is identified by the time trend of household saving rates, which were stable before 1998, but surged subsequently. The second saving puzzle is associated with the various age profiles of household saving rates, which are not only inconsistent with the prediction of the Life Cycle Hypothesis, but also different from the patterns observed in other economies. This paper constructs pseudo‐panel data and empirically examines the applicability of the habit‐formation model in solving the second saving puzzle through the existence of saving rates and the effects of income‐related variables. On the other hand, the parametric changes of such variables help explain the first saving puzzle. The parametric changes possibly stem from the adjustment of habit stock, the rising transitory shocks of income, and the higher expenditure needs for housing. |
