Financial Accelerator Model

Evidence and data

Track credit spreads, net worth, collateral values, investment, and defaults as the amplification channel.

Calibration or measurement

External finance premium, net-worth sensitivity, and shock persistence drive the strength of amplification.

Boundaries

• Bank runs and liquidity spirals need separate mechanics.
• Distribution within firms is compressed.
• Identification requires credit-market evidence.

Use guidance

When sufficient

Credit-driven amplification of real shocks when the external finance premium moves inversely with borrower net worth and collateral values. The Bernanke-Gertler-Gilchrist 1999 (Handbook of Macroeconomics) mechanism is the right tool when declining asset prices tighten credit, raise the cost of external funds, and depress investment beyond what the underlying productivity shock alone would produce. The Kiyotaki-Moore 1997 (JPE) collateral channel adds the endogenous asset-price feedback loop.

When sketch only

Do not use for bank-run dynamics, fire-sale spirals in shadow banking, or the full pathology of a systemic crisis. The model amplifies real shocks through borrower balance sheets; it does not model bank capital impairment, interbank-market freezes, or the wholesale-funding runs that characterized 2007 to 2009. Those mechanics require explicit bank-liability modeling.

When to switch

Switch to a model with explicit bank capital constraints (Gertler-Kiyotaki 2010 Handbook; Gertler-Karadi 2011 JME) when the binding friction is on the bank's own balance sheet rather than the borrower's. Switch to a sudden-stop model (Mendoza 2010 AER) when emerging-market capital-flow reversals and sovereign risk define the crisis.

Falsification signal

A deep credit contraction that produces only a mild output decline would falsify the accelerator mechanism, since the model's defining property is that credit tightening amplifies the real shock beyond the direct effect. A chart of credit spreads rising sharply and persistently without a corresponding widening of the output decline relative to trend would indicate the amplification channel is not operating as specified.