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HOUSEHOLD SAVING,FINANCIAL CONSTRAINTS,AND THE CURRENT ACCOUNT IN CHINA |
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| Authors: | Ay?e ?mrohoro?lu Kai Zhao |
| Institution: | 1. University of Southern California, U.S.A.;2. The University of Connecticut, U.S.A.
We thank Jinhui Bai, Yan Bai, Hui He, Minjoon Lee, Kanda Naknoi, Victor Rios-Rull, and the seminar participants at University of California Santa Barbara, Kansas City Fed, the 2018 IMF China Workshop, the 2018 CICM Meeting, the 2017 Midwest Macro Meetings, the Facing Demographic Change in a Challenging Economic Environment Workshop in Montreal, and the 2017 Southern Economic Association Meeting for their comments. |
| Abstract: | In this article, we present a model that can account for the changes in the current account balance in China since the 2000s. Our results suggest that inadequate insurance through government programs for the elderly and the decline in family insurance due to the one-child policy led to large increases in the household saving rate. These increases coupled with the financial frictions preventing the household saving from being invested in domestic firms resulted in large current account surpluses until 2008. Relaxation of financial constraints, on the other hand, was responsible for the decline in the current account surplus after 2008. |
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