Michael Weber, Purdue University
“Subjective Income Expectations and Household Debt Choices”
Abstract
Matched transaction-level, credit-registry, and survey data show that consumers over-extrapolate from unexpected income shocks to their income expectations. Excessively optimistic income forecasts raise current spending, and when income realizations fall short, lead to greater debt accumulation and higher default. A consumption-savings model with defaultable unsecured debt and extrapolative Kalman filtering, in which consumers overreact to income surprises, reconciles our empirical findings and shows extrapolative income expectations can generate state-dependent household debt cycles.
Michael Weber joined the Daniels School of Business at Purdue University in 2025 as Professor of Finance. He is also a faculty research fellow at the National Bureau of Economic Research in the Monetary Economics and Asset Pricing groups, Research Affiliate in the Monetary Economics and Fluctuations programme of CEPR, a member of the Macro Finance Society, a Research Professor at Ifo Institute and a research affiliate at the CESifo Research Network.
His research interests include asset pricing, macroeconomics, international finance, and household finance and has published in leading economics and finance journals such as the American Economic Review, the Review of Economic Studies, Econometrica, the Journal of Political Economy, the Review of Financial Studies and the Journal of Financial Economics.
Michael Weber has received four National Science Foundation grants and the Humboldt Professorship, the most highly endowed research prize in Germany. His work on downside risk in currency markets and other asset classes earned the 2013 AQR Insight Award.
You can read more about Michael Weber here
CEBI contact: Manuel Menkhoff