The Financial Accelerator and the Flight to Quality

Posted: 15 Sep 1999

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: June 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.

JEL Classification: E32, E44, E51

Suggested Citation

Bernanke, Ben S. and Gertler, Mark and Gilchrist, Simon, The Financial Accelerator and the Flight to Quality (June 1994). Available at SSRN: https://ssrn.com/abstract=5987

Ben S. Bernanke (Contact Author)

Board of Governors of the Federal Reserve System

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Mark Gertler

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

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National Bureau of Economic Research (NBER)

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Simon Gilchrist

Boston University - Department of Economics ( email )

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United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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