Abstract: The deficiency of household consumption has been the pitfall that affects the stable and sustainable development of China's economy. In this paper we employ a Markov switching model with two regimes to study the consumption behavior of China's urban residents, and the empirical results find that the residents' disposable income is the major factor that affects the household consumption, but the real estate assets do not have a significant wealth effect, and the stock market crowds out the consumption to some extent, rather than has any wealth effects. We believe that the reason of the crowding-out effect of the stock market is not that the consumption is insensitive to the stock wealth, but the residents have gained little assets returns in the long term, Therefore, to promote the household consumption needs not only to increase the residents' disposable income, but also to let them feel the real appreciated value from the stock market.

Keyword: Household consumption; Wealth effect; Markov Regime Switching Model