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.

Investopedia explains '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.



comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an 80% loan-to-value ratio, the second position lien has a 10% loan-to-value ratio and the borrower makes a 10% down payment. 80-10-10 mortgage transactions are piggy-back mortgage transactions, and are frequently used by borrowers to avoid paying private mortgage insurance.
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific benchmark, such as a SPDR. Unlike actively managed ETFs, passive ETFs are not managed by a fund manager on a daily basis.
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another market so that it balances out. So when examining a specific market, if all other markets are in equilibrium, Walras' Law asserts that the examined market is also in equilibrium.
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following:
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option is purchased and the lower premium option is sold - both at the same time. The higher the debit spread, the greater the initial cash outflow the investor will incur on the transaction.
Trading Center