Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324767 
Year of Publication: 
2025
Series/Report no.: 
MUNI ECON Working Paper No. 2025-04
Publisher: 
Masaryk University, Faculty of Economics and Administration, Brno
Abstract: 
We analyse how unexpected income changes and aggregate conditions influence income expectations, their uncertainty, and expectation errors. We use a uniquely rich longitudinal Dutch survey collecting detailed information on the distribution of household income expectations. Our results show that unexpected income changes, much more than aggregate conditions, induce a revision in income expectations across the entire spectrum of the expected income distribution, consistent with extrapolative behaviour. We also document that unexpected income changes increase the uncertainty about future income. Our results provide some evidence of over-reaction, particularly to negative unexpected income changes and among high-income individuals. These effects differ based on an individual's position in the income distribution, which may be attributed to differences in income dynamics, role of insurance mechanisms, and varying levels of awareness about how unexpected income changes and aggregate conditions impact household finances.
Subjects: 
Income expectations
Expectation uncertainty
Expectation error
unexpected income changes
Aggregate conditions
JEL: 
D84
G50
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.