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Income expectations, risk attitudes and household borrowing decisions

Author

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  • Eva Branten

Abstract

This paper studies whether positive expectations for real income and risk aversion can provide information beyond that given by the main economic and sociodemographic characteristics for predicting whether a household applied for a loan or increased its outstanding liabilities. Microdata from the Eurosystem Household Finance and Consumption Survey (HFCS) are employed in the study, which covers a subgroup of the countries conducting the survey that have a panel component. The main estimation method used is a set of panel data fixed effects models. The estimation results imply that positive expectations for real income matter for increases in mortgage loans, but not for non-mortgage loans. Risk aversion is negatively related with the probability of applying for a loan but has no significant effect on an increase in debt

Suggested Citation

  • Eva Branten, 2024. "Income expectations, risk attitudes and household borrowing decisions," Bank of Estonia Working Papers wp2023-5, Bank of Estonia, revised 23 Feb 2024.
    • Handle: RePEc:eea:boewps:wp2023-5
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    File URL: http://www.bankofestonia.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud//DOI:10.23656/25045520/052022/0204
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    More about this item

    Keywords

    household borrowing; financial expectations; risk attitudes; Eurosystem Household Finance and Consumption Survey;
    All these keywords.

    JEL classification:

    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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