Household debt and crises of confidence

Thomas Hintermaier and Winfried Koeniger

Quantitative Economics, 2018, vol. 9, issue 3, 1489-1542

Abstract: This paper develops a notion of consumer confidence within a dynamic competitive equilibrium framework. In any situation where multiple equilibrium prices on next‐period spot markets are equally supported by the state of the economy, confidence is encoded in the subjective probabilities consumers attach to these multiple future outcomes. Our approach characterizes the set of all equilibrium‐consistent subjective probabilities, and thereby endogenizes the extent of uncertainty faced by consumers. We use the structure of an economy with collateralized household debt and housing markets to develop and illustrate this concept. Our approach determines the specific range of debt levels at which this economy is vulnerable to crises of confidence, as well as the debt‐level‐specific extent of confidence‐driven house price fluctuations.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.3982/QE769

Related works:
Working Paper: Household Debt and Crises of Confidence (2015)
Working Paper: Household Debt and Crises of Confidence (2015)
Working Paper: Household Debt and Crises of Confidence (2015)
Working Paper: Household Debt and Crises of Confidence (2015)
Working Paper: Household debt and crises of confidence (2015)
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:wly:quante:v:9:y:2018:i:3:p:1489-1542

Ordering information: This journal article can be ordered from
https://www.econometricsociety.org/membership

Access Statistics for this article

More articles in Quantitative Economics from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().