Household Optimism and Overborrowing

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Title: Household Optimism and Overborrowing
Author: Hyytinen, Ari ; Putkuri, Hanna
Series: Journal of Money, Credit and Banking
Series volume: 50
Series number: 1; February 2018
Year of publication: 2018
Publication date: 22.1.2018
Published in: Published in Bank of Finland Research Discussion Papers 21/2012.
Page range: 55-76
Subject (yso): velkaantuminen; kotitaloudet (organisaatiot); luotot; tulot; odotukset; taloudelliset ennusteet; virheet
Keywords: Suomi
JEL: D14; D91
Other keywords: borrowing; forecast errors; overindebtedness
Abstract: We use Finnish household-level data from 1994 to 2013 to measure how often and what kind of forecast errors households make and how the errors are linked to the households' borrowing behavior and overindebtedness. We find that those households that make the largest optimistic forecast errors have greater debt-to-income ratios. They also are more likely to report that they suffer from excessive debt loads and have problems in coping with their bills. There are no such systematic effects for the households that make pessimistic forecast errors.

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