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The Financial Accelerator and the Flight to Quality

  • Ben Bernanke
  • Mark Gertler
  • Simon Gilchrist

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4789.

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Date of creation: Jul 1994
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Publication status: published as Review of Economics and Statistics, vol. LXXVIII, no. 1, February 1996, pp. 1-15
Handle: RePEc:nbr:nberwo:4789
Note: ME
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