Evidence on Expectations of Household Finances

Cocco, João F., Francisco Gomes and Paula Lopes-Cocco

No 17447, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We use panel data on expected and realized changes in household finances to study the process of expectation formation and expectation errors. Households extrapolate from improvements in financial situation, but a deterioration in their finances is associated with an increased dispersion of forecasts. This increased dispersion leads to higher probabilities of both negative and positive forecast errors. Individuals who expect negative earnings shocks to revert too quickly save less and have a higher likelihood of being financially worse off again in the future. A calibrated life-cycle model quantifies the consumption smoothing and welfare implications of belief distortions.

JEL-codes: D84 G40 G50 (search for similar items in EconPapers)
Date: 2022-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP17447 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:17447

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP17447

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().