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Debt and financial expectations: an individual and household level analysis

Sarah Brown (), Karl Taylor (), Gaia Garino and Stephen Wheatley Price

No 03/5, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: In this paper we show that optimistic financial expectations impact positively on both the uantity of debt and the growth in debt, at the individual and household levels. Our heoretical model shows that this association is predicted under a variety of plausible cenarios. In the empirical analysis we explore the determinants of debt and of growth in ebt using British data. We find convincing support for our theoretical priors and show that t is optimistic financial expectations per se that are important in influencing debt, rather han the accuracy of individuals’ predictions regarding their future financial situation.

Keywords: Debt; Financial Expectations; Inter-temporal Consumption; Random Effects; Tobit Estimator (search for similar items in EconPapers)
JEL-codes: D18 D84 D91 (search for similar items in EconPapers)
Date: 2003-05, Revised 2004-02
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Journal Article: Debt and Financial Expectations: An Individual- and Household-Level Analysis (2005) Downloads
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