Agency costs, net worth, and business fluctuations

Ben Bernanke, Mark Gertler

    Research output: Contribution to journalArticle

    Abstract

    This paper develops a simple neoclassical model of the business cycle in which condition of borrowers' balance sheets is a source of output dynamics. The mechanism is that higher borrower net worth reduces the agency costs of financing real capital investments. Business upturns improve net worth, lower agency costs, and increase investment, which amplifies the upturn; vice versa, for downturns. Shocks that affect net worth (as in a debt-deflation) can initiate fluctuations.

    Original languageEnglish (US)
    Pages (from-to)14-31
    Number of pages18
    JournalAmerican Economic Review
    Volume79
    Issue number1
    StatePublished - Mar 1 1989

    Fingerprint

    Business fluctuations
    Agency costs
    Net worth
    Balance sheet
    Fluctuations
    Financing
    Business cycles
    Neoclassical model
    Debt deflation
    Capital investment

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Bernanke, B., & Gertler, M. (1989). Agency costs, net worth, and business fluctuations. American Economic Review, 79(1), 14-31.

    Agency costs, net worth, and business fluctuations. / Bernanke, Ben; Gertler, Mark.

    In: American Economic Review, Vol. 79, No. 1, 01.03.1989, p. 14-31.

    Research output: Contribution to journalArticle

    Bernanke, B & Gertler, M 1989, 'Agency costs, net worth, and business fluctuations', American Economic Review, vol. 79, no. 1, pp. 14-31.
    Bernanke B, Gertler M. Agency costs, net worth, and business fluctuations. American Economic Review. 1989 Mar 1;79(1):14-31.
    Bernanke, Ben ; Gertler, Mark. / Agency costs, net worth, and business fluctuations. In: American Economic Review. 1989 ; Vol. 79, No. 1. pp. 14-31.
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