Household debt and crises of confidence

Artikel

This paper develops a notion of consumer confidence within a dynamic competitive equilibrium framework. In any situation where multiple equilibrium prices on next-period spot markets are equally supported by the state of the economy, confidence is encoded in the subjective probabilities consumers attach to these multiple future outcomes. Our approach characterizes the set of all equilibrium-consistent subjective probabilities, and thereby endogenizes the extent of uncertainty faced by consumers. We use the structure of an economy with collateralized household debt and housing markets to develop and illustrate this concept. Our approach determines the specific range of debt levels at which this economy is vulnerable to crises of confidence, as well as the debt-level-specific extent of confidence-driven house price fluctuations.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Quantitative Economics ; ISSN: 1759-7331 ; Volume: 9 ; Year: 2018 ; Issue: 3 ; Pages: 1489-1542 ; New Haven, CT: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; Expectations; Speculations ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Financial Crises
• Subject: Consumer confidence ; asset price expectations ; household debt ; collateral constraints

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hintermaier, Thomas ; Koeniger, Winfried
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New Haven, CT
• (when): 2018

Further information

• DOI: doi:10.3982/QE769
• Handle: http://hdl.handle.net/10419/217134
• Last update: 10.03.2025, 11:42 AM CET