Subjective Expectations and Financial Intermediation

Francesco D'Acunto, Janet Geo, Lu Liu, Kai Lu, Zhengwei Wang and Jun Yang

No 20280, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Banking (search for similar items in EconPapers)
JEL-codes: D84 D91 E44 G21 (search for similar items in EconPapers)
Date: 2025-05
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