Working Paper: NBER ID: w4789
Authors: Ben Bernanke; Mark Gertler; Simon Gilchrist
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.
Keywords: Financial Accelerator; Credit Market Conditions; Business Cycles; Agency Costs; Economic Activity
JEL Codes: E44; E32; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Adverse shocks (E32) | Worsening credit market conditions (E44) |
| Worsening credit market conditions (E44) | Higher agency costs of lending (G21) |
| Higher agency costs of lending (G21) | Reduced share of credit during economic downturns (F65) |
| Reduced share of credit during economic downturns (F65) | Decreased economic activity (F69) |
| Adverse macroeconomic shocks (F41) | Reduced credit access (G21) |
| Reduced credit access (G21) | Decreased spending and production (E20) |
| Reduced credit access (G21) | Exacerbation of economic downturn (E32) |
| Credit access (G21) | Economic recovery (E65) |