A note on bank loan officers' expectations for credit standards: Evidence from the European bank lending survey

Abstract

We employ quarterly credit standards data from the Bank Lending Survey, covering 14 EU countries for the period 2003 Q1 to 2016 Q1. By linking consecutive surveys and utilizing loan officers' responses regarding actual and expected credit standards, we set out to investigate which expectations formation mechanism best describes loan officers' expectations. According to our findings, bank loan officers' expectations are compatible with the adaptive expectations mechanism.

Are firms' expectations on the availability of external finance rational, adaptive or regressive?

“…Following Lovell (1986), Moosa and Shamsuddin (2004), Drakos (2008), Anastasiou and Drakos (2019) and Anastasiou (2020) the Adaptive Expectations model can be written as:…”

“…In other words, the adaptation rate shows the rate by which economic agents adapt their expectations. According to Lovell (1986), Moosa and Shamsuddin (2004), and Drakos (2008 and Anastasiou and Drakos (2019) to accept the Adaptive Expectations hypothesis, the coefficient of adaptations has to be negative and lie in the open interval (-1,0).…”

“…However, there is a rapidly increasing literature on the mechanisms that form expectations, by employing survey data 2 (Fraser and MacDonald, 1993;Dominitz and Manski, 1997;Dutt and Ghosh 1997;Pesaran and Weale, 2006;Drakos, 2008;Dave 1 Pesaran (1987), Goodwin and Sheffrin (1982) and Dominitz and Manski (1997) have mentioned that the notion of the REH has impressively revised the way that the economic policy is conducted as well as economic modeling is done. 2 A significant number of studies have also shown that macroeconomic models have a better performance when survey-based expectations are employed rather than model-constructed expectations (see for example Batchelor, 1986;Madsen, 1996 andLee andShields, 2000).…”

“…2011 ;Miah et. al., 2016;Anastasiou and Drakos, 2019;Anastasiou, 2020). The main merit of employing survey data is that they correspond to the expectations of the respondents.…”

Essays on Banking

“…Following Pesaran and Weale (2006), Drakos (2008), Dave (2011) and Anastasiou and Drakos (2018), Regressive Perceptions can be stated as:…”