Notably, some evidence supports the view that changes in financial and credit conditions are important in the propagation of the business cycle, a mechanism that has been dubbed the "financial accelerator." Moreover, a fairly large literature has argued that changes in financial conditions may amplify the effects of monetary policy on the economy, the so-called credit channel of monetary-policy transmission.
In fact, as I will discuss, these two ideas are essentially related. As someone who (in a former life) did research on both of these topics, I thought it might be useful for me to provide a somewhat personal overview of the financial accelerator and credit channel ideas and their common underlying logic.