The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Financial Accelerator

  • Oliver de Groot
Reference work entry


The financial accelerator refers to the mechanism by which distortions (frictions) in financial markets amplify the propagation of shocks through an economy. This article sets out the theoretical foundations of the financial accelerator in financial friction DSGE (Dynamic Stochastic General Equilibrium) models and discusses the ability of these models to provide policy recommendations and a narrative for the 2007–08 financial crisis.


Business Cycles Calibration Dynamic Macroeconomics Dynamic Stochastic General Equilibrium (DSGE) Models Estimation Expectations Identification Intertemporal Optimisation Problems Monetary Policy Shocks Technology Shocks Linear Models 

JEL Classifications

G63 E32 E44 E52 G11 
This is a preview of subscription content, log in to check access.


  1. Adrian, T., and H.S. Shin. 2014. Procyclical leverage and value-at-risk. Review of Financial Studies 27: 373–403.CrossRefGoogle Scholar
  2. Adrian, T., P. Colla, and H.S. Shin. 2013. Which financial frictions? Parsing the evidence from the financial crisis of 2007 to 2009. NBER Macroeconomics Annual 27(1): 159–214.CrossRefGoogle Scholar
  3. Bernanke, B.S., and M. Gertler. 1989. Agency costs, net worth, and business fluctuations. The American Economic Review 79(1): 14–31.Google Scholar
  4. Bernanke, B.S., M. Gertler, and S. Gilchrist. 1996. The financial accelerator and the flight to quality. The Review of Economics and Statistics 78(1): 1–15.CrossRefGoogle Scholar
  5. Bernanke, B.S., M. Gertler, and S. Gilchrist. 1999. The financial accelerator in a quantitative business cycle framework. volume 1, Part C of Handbook of macroeconomics, Chapter 21, pp. 1341–1393. Elsevier.Google Scholar
  6. Brock, W., and L. Mirman. 1972. Optimal economic growth and uncertainty: The discounted case. Journal of Economic Theory 4(3): 479–513.CrossRefGoogle Scholar
  7. Brunnermeier, M.K., T. Eisenbach, and Y. Sannikov. 2013. Macroeconomics with financial frictions: A survey. In Advances in economics and econometrics: Tenth world congress, vol. 2. New York: Cambridge University Press.Google Scholar
  8. Candian, G., and M.I. Dmitriev. 2015. Risk aversion and the financial accelerator. Unpublished manuscript.Google Scholar
  9. Carlstrom, C.T., T.S. Fuerst, and M. Paustian. 2010. Optimal monetary policy in a model with agency costs. Journal of Money, Credit, and Banking 42: 37–70.CrossRefGoogle Scholar
  10. Carlstrom, C.T., T.S. Fuerst, and M. Paustian. 2016. Optimal contracts, aggregate risk, and the financial accelerator. American Economic Journal: Macroeconomics 8(1): 119–147.Google Scholar
  11. Chari, V.V., P.J. Kehoe, and E.R. McGrattan. 2007. Business cycle accounting. Econometrica 75(3): 781–836.CrossRefGoogle Scholar
  12. Christiano, L.J., and D. Ikeda. 2012. Government policy, credit markets and economic activity. Unpublished manuscript.Google Scholar
  13. Christiano, L.J., and D. Ikeda. 2013. Leverage restrictions in a business cycle model. Unpublished manuscript.Google Scholar
  14. Christiano, L.J., R. Motto, and M. Rostagno. 2014. Risk shocks. American Economic Review 104(1): 27–65.CrossRefGoogle Scholar
  15. de Groot, O. 2010. Coordination failure and the financial accelerator. Unpublished manuscript.Google Scholar
  16. de Groot, O. 2014. The risk channel of monetary policy. International Journal of Central Banking 10(2): 115–160.Google Scholar
  17. De Paoli, B., and M. Paustian. 2013. Coordinating monetary and macroprudential policies. Unpublished manuscript.Google Scholar
  18. Dmitriev, M., and J. Hoddenbagh. 2014. The financial accelerator and the optimal lending contract. Unpublished manuscript.Google Scholar
  19. Fiore, F.D., and O. Tristani. 2013. Optimal monetary policy in a model of the credit channel. The Economic Journal 123(571): 906–931.CrossRefGoogle Scholar
  20. Fisher, I. 1933. The debt-deflation theory of great depressions. Econometrica 1(4): 337–357.CrossRefGoogle Scholar
  21. Gertler, M. 2013. Comment on “Which financial frictions? Parsing the evidence from the financial crisis of 2007 to 2009”. NBER Macroeconomics Annual 27(1): 215–223.CrossRefGoogle Scholar
  22. Gertler, M., and P. Karadi. 2011. A model of unconventional monetary policy. Journal of Monetary Economics 58(1): 17–34.CrossRefGoogle Scholar
  23. Gertler, M., and N. Kiyotaki. 2010. Financial intermediation and credit policy in business cycle analysis. volume 3 of Handbook of monetary economics, Chapter 11, pp. 547–599. Elsevier.Google Scholar
  24. Gertler, M., N. Kiyotaki, and A. Queralto. 2012. Financial crises, bank risk exposure and government financial policy. Journal of Monetary Economics 59(Supplement): 17–34.CrossRefGoogle Scholar
  25. Goldstein, I., and A. Pauzner. 2005. Demand–deposit contracts and the probability of bank runs. Journal of Finance 60(3): 1293–1327.CrossRefGoogle Scholar
  26. Hart, O., and J. Moore. 1994. A theory of debt based on the inalienability of human capital. Quarterly Journal of Economics 109(4): 841–879.CrossRefGoogle Scholar
  27. Iacoviello, M. 2005. House prices, borrowing constraints, and monetary policy in the business cycle. The American Economic Review 95(3): 739–764.CrossRefGoogle Scholar
  28. Jermann, U., and V. Quadrini. 2012. Macroeconomic effects of financial shocks. The American Economic Review 102(1): 238–271.CrossRefGoogle Scholar
  29. Keynes, J.M. 1936. General theory of employment, interest and money. London: Macmillan.Google Scholar
  30. Kindleberger, C.P. 1978. Manias, panics and crashes: A history of financial crises. New York: Basic Books.CrossRefGoogle Scholar
  31. Kiyotaki, N., and J. Moore. 1997. Credit cycles. Journal of Political Economy 105(2): 211–248.CrossRefGoogle Scholar
  32. Minsky, H.P. 1992. The financial instability hypothesis. Unpublished manuscript.Google Scholar
  33. Modigliani, F., and M. Miller. 1958. The cost of capital, corporation finance and the theory of investment. The American Economic Review 48(3): 261–297.Google Scholar
  34. Quadrini, V. 2011. Financial frictions in macroeconomic fluctuations. FRB Richmond Economic Quarterly 97(3): 209–254.Google Scholar
  35. Townsend, R. 1979. Optimal contracts and competitive markets with costly state verification. Journal of Economic Theory 21(2): 265–293.CrossRefGoogle Scholar
  36. Vlcek, J., and S. Roger. 2012. Macrofinancial modeling at central banks: Recent developments and future directions. Unpublished manuscript.Google Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Oliver de Groot
    • 1
  1. 1.