How We Think About the Economy
Macroeconomic expectations drive how households spend, save and borrow. But thinking about the macroeconomy is not easy: people do not observe most of the relevant information, and few have the time or training to piece it together. So when forming views about inflation, unemployment or credit conditions, households fall back on what feels closer to them: their own experiences.
That experiences matter for expectations is well established. What has been less clear is whether they shape beliefs in a predictable way, especially across different economic domains. My paper, "Credit Market Experiences and Macroeconomic Expectations: Evidence and Theory," shows that they do, and that the pattern lines up with how memory works.
Using almost a decade of US micro survey data, I link households' personal credit experiences to their views about inflation, unemployment, credit conditions and stock prices. The setting is highly relevant: nearly half of US households apply for credit each year, and about one in five applicants is denied.
A Rejection Gap That Spans Macroeconomic Beliefs
The study shows that households recently denied credit are systematically more pessimistic than otherwise similar ones. They expect tighter credit, higher inflation, higher unemployment and lower stock prices, and this pessimism follows a clear order: largest for credit, smaller for inflation and unemployment, smallest for stocks. Standard explanations cannot account for it: rejections do not carry enough information to justify the pessimism they generate, and the gap is not explained by rejected households being more pessimistic types — it remains after accounting for household characteristics, credit histories, risk attitudes and prior beliefs.
A Memory-Based View of Expectations
The evidence points instead to a memory-based mechanism. People form views about the future partly from what comes to mind, and a salient negative experience such as being denied credit makes other negative episodes easier to recall. Those memories then shape expectations about the broader economy. Consistent with this, rejected households remember recent credit conditions as tighter than they actually were, and once I account for these memory distortions, the link between rejection and expected future credit tightening becomes much smaller.
To test the mechanism further, I designed a complementary survey asking US credit users how similar a credit rejection feels to different macroeconomic scenarios. The answers mirror the pattern in beliefs: a rejection is seen as very similar to a credit crunch, somewhat similar to high inflation or unemployment, and only weakly similar to a stock-market decline. The evidence suggests that personal rejections are indeed perceived as macro-relevant for households, and that their associations are predictable, structured by perceived similarity.
From Beliefs to Behavior
Credit rejections shape household behavior directly, by limiting access to borrowing. But the paper shows they can also operate through a second, indirect channel: beliefs. In line with this, I further show that rejected applicants are less likely to plan durable purchases, and that their macroeconomic pessimism accounts for about 10% of this rejection-spending association. This belief channel is stronger among younger households, who have fewer past experiences to weigh against a recent negative one, and among lower-income households, for whom rejections tend to be more costly.
Broader Implications
The paper offers a way to make "sentiment" more concrete, tracing pessimistic beliefs back to specific household experiences and to the predictable ways memory selects what comes to mind. Credit rejections are likely only one example: concurrent research points to other personal events that shape macroeconomic beliefs in similarly structured ways, with broader implications for how aggregate demand responds to household-level shocks.
More broadly, the findings suggest that policies affecting credit access can influence households not only through the loans they receive or do not receive, but also through the beliefs they form afterward.
