The 2007-2008 financial crisis abruptly ended a long period of economic stability, prompting economists to reconsider the role of the financial sector and to reassess its macroeconomic impact. On one hand, this crisis was caused by “credit boom” triggered by household expectations of rising housing prices, and by “housing bubble” generated by the sharp rise in housing prices by investors due to an increase in demand, on the other hand. Different approaches have been developed in the literature to address the crisis issues and to investigate the potential reasons. Most of these researches have focused on the financial accelerator effect.
The term financial accelerator is used to reflect the amplification of economic shocks and their propagation mechanism. It aims to explain how relatively small economic shocks can have large and persistent effects on the aggregate economic activity due to the financial market imperfections (Bruno, 2011). The different modeling approaches of the financial accelerator reflect the variety of the asymmetric information problems between borrowers and lenders. They reflect the various participants' attitudes toward whether they can overcome the problem of asymmetric information or not. The financial accelerator effect has been used to explain the bank lending channel as well.
Authors
Rym Arem
Ph.D. Candidate, University of Carthage
Research Fellows
Mahmoud Sami Nabi
Professor of Economics, University of Carthage
Authors
Houda Boubaker
Assistant Professor, Mediterranean School of Business, South...