Toothless tiger with claws? Financial stability communication, expectations, and risk-taking

Arbeitspapier

We study the effects of central bank communication about financial stability on individuals' expectations and risk-taking. Using a randomized information experiment, we show that communication causally affects individuals' beliefs and investment behavior, consistent with an expectations channel of financial stability communication. Individuals receiving a warning from the central bank expect a higher probability of a financial crisis and reduce their demand for risky assets. This reduction is driven by downward revisions in individuals' expected Sharpe ratios due to lower expected returns and higher perceived downside risks. In addition, these individuals deposit a smaller fraction of their savings at riskier banks.

Object Details

• ISBN: 978-3-95729-813-3
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Deutsche Bundesbank Discussion Paper ; No. 05/2021

Classification and Topics

• Classification: Wirtschaft ; Bayesian Analysis: General ; Consumer Economics: Empirical Analysis ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Central Banks and Their Policies ; Portfolio Choice; Investment Decisions
• Subject: central bank communication ; financial stability ; stock market expectations ; randomized information experiment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Beutel, Johannes ; Metiu, Norbert ; Stockerl, Valentin
• Event: Veröffentlichung
• (who): Deutsche Bundesbank
• (where): Frankfurt a. M.
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/232068
• Last update: 10.03.2025, 11:42 AM CET