Accelerator Principle

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Accelerator Principle

The idea that a small change in consumer behavior can have a large effect on a company's investment. For example, suppose $100 of investment in a bakery produces $100 worth of baked goods. If consumers usually buy $100 of baked goods each year but this increases to $110, the bakery must buy 10% more equipment, baking materials, and so forth, which can increase the amount it invests in its suppliers by more than 10%. The accelerator principle exacerbates advances and declines; it is used in various models of the business cycle. See also: Multiplier.
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Hong Kong Managing Partner Keith Brandt was invited by the Union of Beijing Business Services (UBBS) to present "The Accelerator Effect - Looking at the expansion of Beijing Service Sector from the perspective of Professional Service Institutions" at the 21st Beijing-Hong Kong Economic Cooperation Symposium on 29 November 2017.
A pioneering work by Bernanke, Gertler, and Gilchrist (1999, hereafter BGG) considers credit contracts between FIs and borrowing entrepreneurs in the nonfinancial sector and shows that entrepreneurial net worth plays an important role in delivering a financial accelerator effect.
As a result, the magnitude of the aggregate financial accelerator effect is influenced by the net worths of the two sectors.
Since the net worths of the sectors work complementarily, the financial accelerator effect is reinforced by a deterioration of the FIs' net worth, together with the net worth of the entrepreneurs.
To illustrate the role of the FI sector in the financial accelerator effect, we construct two alternative models and compare properties of these models with our baseline model.
In addition to this, the financial accelerator effect helps amplify and propagate this shock's impact by reducing production inputs, in particular capital inputs, through the credit market imperfection.
The exogenous disruption in the FIs' net worth depresses the economy through the financial accelerator effect.
Chami and Cosimano find that the financial accelerator effect also works in reverse in the case of a contractionary policy action.
And it will have an accelerator effect on the rebuilding of Iraq by forcing the fledgling state to set up the appropriate organs of justice,'' it said.
Perhaps contrary to conventional wisdom, it is not possible to identify a financial accelerator effect in the data either by examining the forecasting power of credit aggregates or, more generally, by studying the lead/lag pattern between credit aggregates and output.
Hubbard and I used a panel dataset of individual manufacturing firms to identify a financial accelerator effect on investment.
In the simulation, lower interest rates raise interest-rate sensitive demand components, which are further increased by higher employment and accelerator effects on business investment (Table A1).

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