Toothless Tiger with Claws? Financial Stability Communication, Expectations, and Risk-Taking

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 causally affects beliefs investment behavior, consistent with an channel communication. Individuals receiving warning from expect higher probability crisis reduce their demand for risky assets. This reduction is driven by downward revisions in expected Sharpe ratios due to lower returns perceived downside risks. In addition, these individuals deposit smaller fraction savings at riskier banks.