Financial Accelerator

DEFINITION of 'Financial Accelerator'

A financial theory that states that a small change in financial markets can produce a large change in economic conditions and create a feedback loop. The theory is attributed to Federal Reserve Board Chairman Ben Bernanke and fellow economists Mark Gertler and Simon Gilchrist. Bernanke's belief in the financial accelerator may account for some of his policy decisions, such as cutting interest rates in the wake of the credit crisis of 2008-2010.

BREAKING DOWN 'Financial Accelerator'

The financial accelerator idea may help to clarify the causes of both the booms and busts of the business cycle. For example, Bernanke and Gertler have written that the financial accelerator may explain why the Great Depression was so severe. It may also shed light on the subprime mortgage crisis.

RELATED TERMS
  1. Big Ben

    An investing slang term referencing Ben Bernanke. The name Big ...
  2. The Great Moderation

    The Great Moderation is the name given to the period of decreased ...
  3. Accelerator Theory

    An economic theory that suggests that as demand or income increases ...
  4. Credit Easing

    Policy tools used by central banks to make credit more readily ...
  5. Helicopter Drop

    A hypothetical, unconventional tool of monetary policy that involves ...
  6. Alan Greenspan

    The former chairman of the Board of Governors of the Federal ...
Related Articles
  1. Mutual Funds & ETFs

    Citadel And Bernanke, The Perfect Relationship?

    How does Bernanke's relationship with investment firms impact Wall Street and Main Street?
  2. Forex Education

    7. Build Positive Feedback Loops

    This will help you recognize when your strategy is successful and can build the investor confidence you need.
  3. Fundamental Analysis

    7 Controversial Investing Theories

    We take a closer look at the theories that attempt to explain and influence the market.
  4. Economics

    What are the Federal Reserve Chairman's responsibilities?

    Learn about the duties and responsibilities of the chairman of the Federal Reserve Board, including testifying before Congress and as chair of the FOMC.
  5. Professionals

    General Theory

    Chapter 3 - General Theory
  6. Professionals

    Investment Theory and Portfolio Development

    Investment Theory and Portfolio Development
  7. Investing News

    Jim Simons' Success Story: Net Worth, Education & Top Quotes

    Learn about the billionaire "Quant King," James Simons, and how the award-winning mathematician built his highly successful trading career.
  8. Mutual Funds & ETFs

    Introduction & Theory

    Introduction & Theory
  9. Economics

    The Federal Reserve: Conclusion

    The Fed has more power and influence on financial markets than any legislative entity. Its monetary decisions are intensely observed and often lead the way for other countries to take the same ...
  10. Active Trading Fundamentals

    Dow Theory: Current Relevance

    By Chad Langager and Casey Murphy, senior analyst of ChartAdvisor.comThere is little doubt that Dow theory is of major importance in the history of technical analysis. Many of its tenets and ...
RELATED FAQS
  1. What's the difference between agency theory and stakeholder theory?

    Learn how agency theory and stakeholder theory are used in business to understand common business communication problems ... Read Answer >>
  2. What growth rate does the financial services sector demonstrate on average?

    Find out what the average annual growth rate in the financial services sector has been, and learn about factors that might ... Read Answer >>
  3. How is the Federal Reserve audited?

    Learn how the Federal Reserve gets audited. Due to gridlock, the Federal Reserve has been forced to take on the role of stimulating ... Read Answer >>
  4. What is the chaos theory?

    The chaos theory is a complicated and disputed mathematical theory that seeks to explain the effect of seemingly insignificant ... Read Answer >>
  5. Is a good's production cost related to its value?

    Learn about the history and debate regarding the metrics used to determine the value of a good and which theories place emphasis ... Read Answer >>
  6. What are the differences between weak, strong and semi-strong versions of the Efficient ...

    Discover how the efficient market theory is broken down into three versions, the hallmarks of each and the anomalies that ... Read Answer >>
Hot Definitions
  1. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  5. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  6. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
Trading Center