Subjective Expectations and Financial Intermediation
87 Pages Posted: 17 Jan 2025
Date Written: December 19, 2024
Abstract
Using a customized survey and an information-provision experiment, we establish that loan officers' subjective expectations about inflation, GDP growth, and policy rates have a sizable causal effect on credit supply choices. To the extent that subjective expectations vary widely across loan officers, their lending decisions also exhibit substantial heterogeneity, even for the same loan application at the same time. Subjective expectations also drive heterogeneous sensitivity to changes in borrowers' fundamentals: officers with rosier macroeconomic expectations penalize less borrowers with worsening fundamentals than do officers with more pessimistic expectations. Our findings have implications for theories of credit market fluctuations and unveil a new type of friction to the transmission of monetary policy.
Keywords: Credit Supply, Financial Frictions, Behavioral Macroeconomics, Behavioral Finance, Monetary Policy, Banking, Micro-to-Macro, Randomized Control Trials, Surveys
Suggested Citation: Suggested Citation