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Subjective Income Expectations and Household Debt Cycles / Francesco DâAcunto, Michael Weber, Xiao Yin.
- Format:
- Book
- Author/Creator:
- DâAcunto, Francesco.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w32715.
- NBER working paper series no. w32715
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- Matched transaction-level, credit-registry, and survey-based data reveal that consumers on average form excessively high (low) income expectations relative to ex-post realizations after unexpected positive (negative) income shocks. These extrapolative income expectations lead consumers to increase current spending, accumulate more debt, and face more defaults when lower-than-expected incomes are realized. We assess the aggregate implications by estimating a consumption model with defaultable unsecured debt and diagnostic Kalman filtering whereby consumers over-extrapolate income shocks when forming expectations. Extrapolative income expectations help explain state-dependent household debt cycles qualitatively and quantitatively.
- Notes:
- July 2024.
- Print version record
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