NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Financial Accelerator and the Flight to Quality

Ben Bernanke, Mark Gertler, Simon Gilchrist

NBER Working Paper No. 4789
Issued in July 1994
NBER Program(s):   ME

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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Document Object Identifier (DOI): 10.3386/w4789

Published: Review of Economics and Statistics, vol. LXXVIII, no. 1, February 1996, pp. 1-15 citation courtesy of

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