Financial Expectations and Household Consumption: Does Middle Inflation Matter?

Sarah Brown (), Mark Harris, Christopher Spencer and Karl Taylor

No 13023, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Using British panel data, we explore the finding that households often expect theirÂ…financial position to remain unchanged compared to other alternatives, using a generalised middle inflated ordered probit (GMIOP) model. In doing so we account for the tendency of individuals to choose 'neutral' responses when faced with attitudinal and opinion-based questions, which are a common feature of survey data. Our empirical analysis strongly supports the use of a GMIOP model to account for this response pattern. Expectations indices based on competing discrete choice models are then exploited to explore the role that financial expectations play in driving the consumption of different types of durable goods and the amount of expenditure undertaken. Whilst financial optimism is significantly associated with consumption, indices which fail to take into account middle-inflation overestimate the impact of financial expectations.

Keywords: household consumption; financial expectations; survey data; generalised middle-inflated ordered probit model (search for similar items in EconPapers)
JEL-codes: C12 C35 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2020-03
New Economics Papers: this item is included in nep-dcm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published - published in: Journal of Money, Credit and Banking, 2024, 56 (4), 741-768.

Downloads: (external link)
https://docs.iza.org/dp13023.pdf (application/pdf)

Related works:
Journal Article: Financial Expectations and Household Consumption: Does Middle‐Inflation Matter? (2024)
Working Paper: Financial Expectations and Household Consumption: Does Middle Inflation Matter? (2020)
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:iza:izadps:dp13023

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().