The role of risk attitudes and expectations in household borrowing in Estonia

Eva Brandten ()

No wp2021-5, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This study investigates the relations between risk attitudes and expectations and different aspects of borrowing by households in Estonia. The central research question is whether risk aversion and optimism provide additional information beyond the main economic and sociodemographic characteristics in explaining borrowing behaviour. The paper uses microdata from the Estonian Household Finance and Consumption Survey (HFCS) to estimate probit and Heckman models. My analysis shows that risk-tolerant households apply for loans more often than risk-averse households do and that their loans are larger. For mortgage loans, risk aversion is related to the probability of having a loan, whereas for non-mortgage loans, risk aversion is related to the size of the outstanding liabilities. The variables describing the household’s expectations for its future financial situation are on their own related to the decision to apply for a loan, but they do not contain any relevant additional information beyond the main economic and sociodemographic characteristics of the household

Keywords: household debt; mortgage loans; non-mortgage loans; borrowing decisions; income and price expectations; risk attitudes; Household Finance and Consumption Survey (search for similar items in EconPapers)
JEL-codes: D14 G51 (search for similar items in EconPapers)
Date: 2021-11-10, Revised 2021-11-10
New Economics Papers: this item is included in nep-ban, nep-cis, nep-eur, nep-tra and nep-upt
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