The financial accelerator effect occurs when a firm acquires large profits beyond previously required cash flows, allowing the firm to invest in positive net present value projects, which in turn increase profits further. Cash flow (also called net cash flow) is the balance of the amounts of Cash being received and paid by a business during a defined period of time sometimes tied Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving Net present value ( NPV) or net present worth ( NPW) is defined as the total Present value (PV of a Time series of Cash flows This cycle of increased financial resources accelerates until firm is unable to find other positive NPV investments.
Macroeconomic theorists, such as Ben Bernanke, have found increasing theoretical[1] and empirical evidence to suggest financial accelerator effects in macroeconomic phenomena such as flight to quality[2] and the broader business cycle[3]. Ben Shalom Bernanke (born December 13, 1953) is the incumbent Chairman of the Board of Governors of the United States Federal Reserve. A flight-to-quality is a stock market phenomenon occurring when investors sell what they perceive to be higher Risk investments and purchase more safe investments instead such The term business cycle or economic cycle refers to the fluctuations of economic activity during its long term growth trend
References
- ^ Gilchrist and Himmelberg, 1993, "Evidence on the Role of Cash Flow for Investment"
- ^ Gilchrist, Bernanke and Gertler, 1996, "The Financial Accelerator and the Flight to Quality"
- ^ Bernanke, Gertler and Gilchrist, 1998, "The Financial Accelerator in a Quantitative Business Cycle Framework"