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Subjective Expectations and Financial Intermediation

Author

Listed:
  • Francesco D'Acunto
  • Janet Gao
  • Lu Liu
  • Kai Lu
  • Zhengwei Wang
  • Jun Yang

Abstract

Using a customized survey and an information-provision experiment, we establish that loan officers’ individual subjective expectations about inflation, GDP growth, and policy rates vary substantially within and across bank types and have a sizable causal effect on credit supply decisions. Decisions about loan issuance and pricing exhibit large heterogeneity based on loan officers’ subjective expectations even for the same borrower assessed at the same time. Moreover, 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 financial intermediation and reveal an overlooked human-based friction to the transmission of monetary policy.

Suggested Citation

  • Francesco D'Acunto & Janet Gao & Lu Liu & Kai Lu & Zhengwei Wang & Jun Yang, 2025. "Subjective Expectations and Financial Intermediation," CESifo Working Paper Series 11780, CESifo.
    • Handle: RePEc:ces:ceswps:_11780
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    credit supply; financial frictions; behavioral macroeconomics; behavioral finance; monetary policy; banking; micro-to-macro; randomized control trials; surveys.;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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