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.
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number
03/5.
Length: Date of creation: May 2003 Date of revision:
Feb 2004 Handle: RePEc:lec:leecon:03/5
Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK Phone: +44 (0)116 252 2887 Fax: +44 (0)116 252 2908 Email: Web page: http://www.le.ac.uk/economics/
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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