The financial accelerator in macroeconomics is the process by which adverse shocks to the economy may be amplified by worsening financial market conditions. More broadly, adverse conditions in the real economy and in financial markets propagate the financial and macroeconomic downturn. Financial accelerator mechanism The link between the real economy and financial markets stems from firms’ need for external finance to engage in physical investment opportunities. Firms’ ability to borrow depends essentially on the market value of their net worth. The reason for this is asymmetric information between lenders and borrowers. Lenders are likely to have little information about the reliability of any given borrower. As such, they usually require borrowers to set forth their ability to repay, often in the form of collateralized assets. It follows that a fall in asset prices deteriorates the balance sheets of the firms and their net worth. The resulting deterioration of their ability to borrow has a negative impact on their investment. Decreased economic activity further cuts the asset prices down, which leads to a feedback cycle of falling asset prices, deteriorating balance sheets, tightening financing conditions and declining economic activity. This vicious cycle is called a financial accelerator. It is a financial feedback loop or a loan/credit cycle, which, starting from a small change in financial markets, is, in principle, able to produce a large change in economic conditions. History of acceleration in macroeconomics The financial accelerator framework has been widely used in many studies during the 1980s and 1990s, especially by Bernanke, Gertler and Gilchrist, but the term “financial accelerator” has been introduced to the macroeconomics literature in their 1996 paper. The motivation of this paper was the longstanding puzzle that large fluctuations in aggregate economic activity sometimes seem to arise from seemingly small shocks, which rationalizes the existence of an accelerator mechanism. They argue that financial accelerator results from changes in credit market conditions, which affect the intrinsic costs of borrowing and lending associated with asymmetric information. The principle of acceleration, namely the idea that small changes in demand can produce large changes in output, is an older phenomenon which has been used since the early 1900s. Although Aftalion's 1913 paper seems to be the first appearance of the acceleration principle, the essence of the accelerator framework could be found in a few other studies previously. As a well-known example of the traditional view of acceleration, Samuelson (1939) argues that