| Abstract | Currently, our export is sluggish, production is over capacity, and the economy is confronted with downward pressure. Therefore, it is very important to increase consumption demand for the economic growth. This paper tries to study the characteristics of households consumption for the purpose of providing theoretical support for policy making. Firstly, we assume that there are two types of households: permanent income consumers and rule-of-thumb consumers. We separate intertemporal substitution and relative risk aversion by using the Epstein-Zin utility function, and obtain a new Euler equation through correcting an error in the previous literature. We use generalized method of moments to estimate the equation with macroeconomics data from 1978 to 2013, and find that the proportion of aggregate disposable income allocated to rule-of-thumb households is about 0.56～0.74 for urban citizens, whereas there are no rule-of-thumb households for rural citizens. The urban households are not only depend on permanent income, but also on rule-of-thumb consumption, while the rural households only depend on permanent income. Finally, robustness tests further support the above conclusion. Therefore, if we want to enlighten the force of economic growth, we should greatly develop consumption companies in urban zones, and develop them in a planned way in rural areas, and be cautions with risks of over capacity. |