Financial Expectations and Household Consumption: Does Middle Inflation Matter?

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

No 2020002, Working Papers from The University of Sheffield, Department of Economics

Abstract: Using British panel data, we explore the finding that households often expect their financial position to remain unchanged compared to other alternatives, using a gener- alised 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 ex- ploited 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 are found to overestimate the impact of financial expectations.

Keywords: Survey data; financial expectations; generalised middle-inflated ordered probit model; household consumption (search for similar items in EconPapers)
JEL-codes: C12 C35 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2020-02
New Economics Papers: this item is included in nep-ore
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.sheffield.ac.uk/economics/research/serps First version, February 2019 (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:shf:wpaper:2020002

Access Statistics for this paper

More papers in Working Papers from The University of Sheffield, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Mike Crabtree ().