Financial accelerator

Financial accelerator

The financial accelerator effect occurs when a firm acquires large profits beyond previously required cash flows, allowing the firm to invest in positive net present value projects, which in turn increase profits further. This cycle of increased financial resources accelerates until firm is unable to find other positive NPV investments.

Macroeconomic theorists, such as Ben Bernanke, have found increasing theoretical [Gilchrist and Himmelberg, 1993, "Evidence on the Role of Cash Flow for Investment"] and empirical evidence to suggest financial accelerator effects in macroeconomic phenomena such as flight to quality [Gilchrist, Bernanke and Gertler, 1996, "The Financial Accelerator and the Flight to Quality"] and the broader business cycle [Bernanke, Gertler and Gilchrist, 1998, "The Financial Accelerator in a Quantitative Business Cycle Framework"] .

References


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