Financial Expectations, Consumption and Saving: A Microeconomic Analysis
AbstractWe explore the determinants of individuals´ financial expectations using data from the British Household Panel Survey (BHPS) 1991-2001. Our findings suggest that individuals´ financial predictions are influenced by both the life cycle and the business cycle. We also investigate the extent to which the accuracy of past financial expectations affects current financial expectations. Interestingly, only past financial optimism matters, regardless of the accuracy of the prediction. We also explore the relationship between financial realisations and expectations and we find that expectations tend to fall short of financial realisations. Finally, we investigate the relationship between financial expectations, savings and consumption. Our findings suggest that financial optimism is inversely associated with savings and that current financial expectations serve to predict future consumption.
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Bibliographic InfoPaper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2006006.
Length: 27 pages
Date of creation: May 2006
Date of revision: May 2006
Consumption; Financial Expectations; Financial Realisations; Forecasting Accuracy; Savings.;
Other versions of this item:
- Sarah Brown & Karl Taylor, 2006. "Financial expectations, consumption and saving: a microeconomic analysis," Fiscal Studies, Institute for Fiscal Studies, vol. 27(3), pages 313-338, August.
- D10 - Microeconomics - - Household Behavior - - - General
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-03-17 (All new papers)
- NEP-EEC-2007-03-17 (European Economics)
- NEP-FOR-2007-03-17 (Forecasting)
- NEP-MAC-2007-03-17 (Macroeconomics)
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