Expectations Uncertainty and Household Economic Behavior
Abstract: We show that there exists significant heterogeneity across U.S. households in how uncertain they are in their expectations regarding personal and macroeconomic outcomes, and that uncertainty in expectations predicts households’ choices. Individuals with lower income or education, more precarious finances, and living in counties with higher unemployment are more uncertain in their expectations regarding own-income growth, inflation, and national home price changes. People with more uncertain expectations, even accounting for their socioeconomic characteristics, exhibit more precaution in their consumption, credit, and investment behaviors.
Written with Itzhak Ben-David (Ohio State University & NBER), Elyas Fermand (University of North Carolina), and Geng Li (Federal Reserve Board).
Finance Seminars at Caltech are funded through the generous support of The Ronald and Maxine Linde Institute of Economic and Management Sciences (lindeinstitute.caltech.edu).
Contact: Sabrina Hameister at 626-395-4228 firstname.lastname@example.org