What Is the Financial Accelerator?

The theory of financial accelerator is that the important impact of incomplete information on the relationship between borrowers and lenders is that it makes banks have higher costs to obtain information about corporate projects. These imperfections in the capital market have led to inefficient allocation of funds in the lending market and suboptimal investment. That is, the agency cost of external financing is higher than internal financing, that is, there are additional costs of external financing. In this way, the investment must depend on the balance sheet of the enterprise. The higher the agency cost, the lower the efficiency of fund allocation in the borrowing market, and the lower the investment level.

Financial accelerator theory

Financial accelerator theory means

Therefore, Bernanke and Gertler believe that the level of investment depends on the

because

An important feature of the role of the financial accelerator mechanism is its dual asymmetry:

Some researchers have provided empirical evidence of such asymmetric effects in the United States following actual shocks or currency shocks. Gertler and Gilchfist find small companies

After Bernanke and Getler proposed the financial accelerator model, they introduced the financial accelerator mechanism to a new model in 1996.

In 1999, Bernanke and Gertler and others put

Attempts to stabilize asset prices are inherently questionable for a number of reasons. One important reason is that it is almost impossible to determine whether a certain change in asset prices is due to basic or non-basic economic factors, or There are factors. By focusing on the inflation or austerity pressure caused by changes in asset prices, the flexible inflation target policy allows the central bank to respond effectively to asset price inflation or rupture without having to consider whether it is a basic factor. At the same time, it can also avoid the related risks in history, that is, if the bubble is burst, the economy will easily fall into panic. Finally, inflation targets also help maintain a stable macroeconomic situation. When adopting a flexible inflation target policy, interest rates tend to rise when asset prices are inflated, and interest rates fall when asset prices break, so this monetary policy can reduce The emergence of potential financial panic.