Subjective Expectations and Financial Intermediation

87 Pages Posted: 17 Jan 2025

See all articles by Francesco D'Acunto

Francesco D'Acunto

Georgetown University

Janet Gao

McDonough School of Business

Lu Liu

Central University of Finance and Economics (CUFE)

Kai Lu

Shanghai University of Finance and Economics

Zhengwei Wang

Tsinghua University - PBC School of Finance

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

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

D'Acunto, Francesco and Gao, Janet and Liu, Lu and Lu, Kai and Wang, Zhengwei and Yang, Jun, Subjective Expectations and Financial Intermediation (December 19, 2024). Available at SSRN: https://ssrn.com/abstract=5064830 or http://dx.doi.org/10.2139/ssrn.5064830

Francesco D'Acunto

Georgetown University ( email )

Washington, DC 20057
United States

Janet Gao (Contact Author)

McDonough School of Business ( email )

Washington, DC 20057
United States

Lu Liu

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Kai Lu

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Zhengwei Wang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China

Jun Yang

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

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