Regulator Beliefs

Manav Chaudhary, Joint Program in Financial Economics PhD Student

I (Chaudhary) use the life insurance industry as a laboratory to document regulator’s (quasi-) beliefs about risk and study the implications of these beliefs on the actions of the regulated firms. Intermediaries increasingly face model-based capital constraints that (explicitly or implicitly) depend on the regulator’s projections of future market and economic variables. I refer to these projections as the regulator’s quasi-beliefs. These beliefs’ dynamics are of first-order economic relevance as they coordinate the actions of regulated intermediaries.