Financial Accelerator

AAA

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.

RELATED TERMS
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  2. Big Ben

    An investing slang term referencing Ben Bernanke. The name Big ...
  3. Ben Bernanke

    The chairman of the board of governors of the U.S. Federal Reserve. ...
  4. Classical Economics

    Classical economics refers to work done by a group of economists ...
  5. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
  6. Neoclassical Economics

    An approach to economics that relates supply and demand to an ...
Related Articles
  1. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  2. Economics

    Ben Bernanke: Background And Philosophy

    Get some insight into the man at the forefront of key U.S economic decisions.
  3. Investing News

    Quantitative Easing: Does It Work?

    This controversial monetary policy has been used by some of the world's most powerful economies. But does it work?
  4. Economics

    Translating "Fed Speak" Into Plain English

    Confused by the Fed's lingo? Find out what it can tell you and learn how to decipher it.
  5. Forex Education

    3 Factors That Drive The U.S. Dollar

    We look at three important factors that affect U.S. dollar value, and how to determine when it's the right time to buy currency.
  6. Economics

    Janet Yellen Vs. Alan Greenspan: Who Is The Better Fed Head?

    We examine how these two histories Fed chairpeople differ and the impact of their views and actions on the world economy.
  7. Economics

    What's the Federal Funds Rate?

    The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.
  8. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  9. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  10. Investing Basics

    Using Normal Distribution Formula To Optimize Your Portfolio

    Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk.

You May Also Like

Hot Definitions
  1. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  2. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  3. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  4. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  5. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  6. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
Trading Center