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Misclassification of the dependent variable in a debt–repayment behavior context

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  • Aller, Carlos
  • González Chapela, Jorge

Abstract

This paper estimates a model of the household debt–repayment decision that accounts for the possibility of misclassification of self-reported debt–repayment status. It likewise estimates the extent of misclassification in a sample of data from different European countries. The evidence suggests that many households that are in arrears do not report this condition, so that the true level of arrears is, on average, 24% higher than that observed in our data. Furthermore, the effects on the incidence of arrears of adverse income and expense shocks are substantially greater than those predicted by estimators that ignore the possibility of misclassification.

Suggested Citation

  • Aller, Carlos & González Chapela, Jorge, 2013. "Misclassification of the dependent variable in a debt–repayment behavior context," Journal of Empirical Finance, Elsevier, vol. 23(C), pages 162-172.
    • Handle: RePEc:eee:empfin:v:23:y:2013:i:c:p:162-172
    DOI: 10.1016/j.jempfin.2013.06.001
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    Cited by:

    1. Jorge González Chapela, 2022. "A Binary Choice Model with Sample Selection and Covariate-Related Misclassification," Econometrics, MDPI, vol. 10(2), pages 1-20, March.

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    More about this item

    Keywords

    Debt repayment; Arrears; Response error;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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