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Mortgages and Financial Expectations: A Household-Level Analysis

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Author Info
Sarah Brown (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom)
Gaia Garino (Department of Economics, University of Leicester, University Road, Leicester, Leicestershire LE1 7RH, United Kingdom)
Karl Taylor () (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom)

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Abstract

We contribute to the literature on household mortgage debt by exploring one particular influence on mortgage debt at the household level, namely the financial expectations of the individuals within the household. Our theoretical model predicts a positive association between the quantity of mortgage debt and optimistic financial expectations. Our empirical findings based on household level data provide convincing support for our theoretical priors in that optimistic financial expectations are positively associated with the level of outstanding mortgage debt.

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Publisher Info
Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 74 (2008)
Issue (Month): 3 (January)
Pages: 857-878
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Handle: RePEc:sej:ancoec:v:74:3:y:2008:p:857-878

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Find related papers by JEL classification:
D18 - Microeconomics - - Household Behavior - - - Consumer Protection
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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  1. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November. [Downloadable!] (restricted)
    Other versions:
  2. Carroll, Christopher D & Fuhrer, Jeffrey C & Wilcox, David W, 1994. "Does Consumer Sentiment Forecast Household Spending? If So, Why?," American Economic Review, American Economic Association, vol. 84(5), pages 1397-1408, December. [Downloadable!] (restricted)
    Other versions:
  3. Jost, Peter-Jurgen, 1996. "On the Role of Commitment in a Principal-Agent Relationship with an Informed Principal," Journal of Economic Theory, Elsevier, vol. 68(2), pages 510-530, February. [Downloadable!] (restricted)
  4. Leece, David, 2000. "Choice of Mortgage Instrument, Liquidity Constraints and the Demand for Housing Debt in the UK," Applied Economics, Taylor and Francis Journals, vol. 32(9), pages 1121-32, July. [Downloadable!] (restricted)
  5. Crook, Jonathan, 2001. "The Demand for Household Debt in the USA: Evidence from the 1995 Survey of Consumer Finance," Applied Financial Economics, Taylor and Francis Journals, vol. 11(1), pages 83-91, February. [Downloadable!] (restricted)
  6. Stefan Krasa & Anne P. Villamil, 2000. "Optimal Contracts when Enforcement Is a Decision Variable," Econometrica, Econometric Society, vol. 68(1), pages 119-134, January.
  7. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1996. "Income Risk, Borrowing Constraints, and Portfolio Choice," American Economic Review, American Economic Association, vol. 86(1), pages 158-72, March. [Downloadable!] (restricted)
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  8. Leece, David, 1995. "Rationing, Mortgage Demand and the Impact of Financial Deregulation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 43-66, February.
  9. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Blackwell Publishing, vol. 52(4), pages 647-63, October. [Downloadable!] (restricted)
  10. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May. [Downloadable!] (restricted)
  11. Marjorie Flavin & Takashi Yamashita, 2002. "Owner-Occupied Housing and the Composition of the Household Portfolio," American Economic Review, American Economic Association, vol. 92(1), pages 345-362, March. [Downloadable!]
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