The Financial Accelerator and the Flight to Quality

54 Pages Posted: 17 Aug 2010 Last revised: 18 Aug 2010

See all articles by Ben S. Bernanke

Ben S. Bernanke

Board of Governors of the Federal Reserve System

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Simon Gilchrist

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 1994

Abstract

Adverse shocks to the economy may be amplified by worsening credit-market conditions-- the financial 'accelerator'. Theoretically, we interpret the financial accelerator as resulting from endogenous changes over the business cycle in the agency costs of lending. An implication of the theory is that, at the onset of a recession, borrowers facing high agency costs should receive a relatively lower share of credit extended (the flight to quality) and hence should account for a proportionally greater part of the decline in economic activity. We review the evidence for these predictions and present new evidence drawn from a panel of large and small manufacturing firms.

Suggested Citation

Bernanke, Ben S. and Gertler, Mark and Gilchrist, Simon, The Financial Accelerator and the Flight to Quality (July 1994). NBER Working Paper No. w4789. Available at SSRN: https://ssrn.com/abstract=1660278

Ben S. Bernanke

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Mark Gertler

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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New York, NY 10003
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National Bureau of Economic Research (NBER)

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Simon Gilchrist

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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