Is a consumer loan a catalyst for confidence?

ABSTRACT

In the context of the global economic downturn, the approach guided by consumer loans (CL) to boost consumer confidence is a feasible way to promote the internal circulation of the Chinese economy. Therefore, we use a time-varying rolling-window approach to identify how CL affects the consumer confidence index (CCI). We find that CL can be seen as vital support for promoting confidence because it can ease liquidity constraints and improve consumption levels. The empirical outcome is supported by the Rational Expectations Perpetual Income Hypothesis (RE-PIH), emphasizing that increasing CL can boost consumer confidence. Conversely, CCI has both positive and negative effects on CL. The positive effects suggest that consumers' optimistic confidence leads them to increase borrowing, which in turn creates a heavier debt burden. This statement cannot be supported by the negative effect due to consumers' blind self-confidence will cause cognitive bias, which is not conducive to the loan market development. Against the backdrop of increased global uncertainty due to the COVID-19 pandemic and the government's continuous adjustment of loan policies, consumers can effectively optimise their consumption decision-making through borrowing. The policymaker can maintain loan stability by effectively promoting consumer confidence and raising the consumption level of the whole society.