In Search of the Financial Accelerator
Institute for New Economic Thinking, INO11-00040
Principal Investigator: David Weinstein
David Weinstein of Columbia University was awarded a grant by the Institute for New Economic Thinking to research 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 aims to provide the first empirical assessment of how the output of firms outside of the financial sector is affected by the health of the banks and other financial institutions. It will attempt to bridge the gap between the financial crises and the output declines by providing the first direct evident on the linkage through the use of Japanese data that provides information the sources and values of all loans received by firms. This will enable the researchers to trace how problems in financial institutions were transmitted to firms.
In the case that the linkages between the real and financial sector can be demonstrated, the project will go a long way towards providing an empirical underpinning for new approaches to macroeconomic policy.