In Search of the Financial Accelerator

This research project explores how the output of firms outside of the financial sector is affected by the health of the banks and other financial institutions.

Presently, our understanding of the real effects of financial crises has largely been based on evidence arising from industry studies or has been limited to evidence of how financial health affects the providers of credit. The project provides the first direct evidence of the linkage between financial crisis and the output declines through the use of Japanese data on the sources and values of all loans received by firms. The data traces how problems in financial institutions were transmitted to firms and helps to provide an empirical underpinning for new approaches to macroeconomic policy.