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Understanding Expectations Formation for Hand-to-Mouth Households: Lessons from the Financial Crisis

Author

Listed:
  • Tufan Ekici
  • Martin Geiger
  • Marios Zachariadis

Abstract

We study how poor hand-to-mouth and wealthy hand-to-mouth households form their expectations as compared to wealthy liquid households in the United States, using monthly microeconomic survey data for the period from 2005:2 to 2013:6. Utilizing a timeline of financial crisis events along with changes in stock-market values and uncertainty around those events, we assess the differential responses of these households’ expectations regarding inflation, unemployment, and the interest rate. Our estimates suggest substantial differences in the expectation responses of liquidity constrained households relative to unconstrained ones.

Suggested Citation

  • Tufan Ekici & Martin Geiger & Marios Zachariadis, 2024. "Understanding Expectations Formation for Hand-to-Mouth Households: Lessons from the Financial Crisis," University of Cyprus Working Papers in Economics 05-2024, University of Cyprus Department of Economics.
    • Handle: RePEc:ucy:cypeua:05-2024
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    More about this item

    Keywords

    liquidity constraints; inflation expectations; unemployment expectations; interest rate expectations; financial shocks;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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