EuroEconomica, Vol 31, No 2 (2012)

Abstract

In the financial sector, due to the structure of the involved companies, the sophisticated network of exposures among institutions, the related credibility problems and the inter-temporal character of financial contracts contagion phenomenon is hence considered a noteworthy topic in the scientific discussions. Understanding the transmission channels that exist between the financial and real sectors of the economy is critically important when assessing financial stability and economic growth. Identifying three categories of transmission channels (the interest rate channel, the wealth effect, and the financial accelerator) that exist between the financial and the real sector, this paper comment the literature on this issue and present some original observations. The current financial crisis by tighten the financing conditions, by falling houses’ and financial assets’ prices, by damaging growth prospects, has a devastating negative impact on the financial situation of firms and households.