The Implications of High Leverage for Financial Instability Risk, Real Economic Activity, and Appropriate Policy Responses 2021 | Federal Reserve Bank of Boston | 8 November 2021 | Virtual Event

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The economy entered the COVID-19 crisis with an unprecedentedly high level of business leverage. Moreover, with interest rates expected to remain extremely low for several years to come, the indebtedness of businesses, households, and government is likely to increase further. These developments raise concerns among policymakers about the potential effects of a high, and potentially increasing, debt burden on financial stability and the real economy, both at the onset of a crisis and during the subsequent recovery phase.

This conference explores the various factors driving the rise in debt, as well as the risks to and potential impact on the financial system and the real economy as both cause and amplifier of adverse shocks. The conference also examines the implications of high leverage for policy responses to adverse shocks, as well as policy designs going forward that can curb the excessive buildup of debt.

The conference’s focus is on corporate leverage and household leverage, including leverage associated with real estate lending, both commercial and residential, which has played a major role in previous recessions and episodes of financial instability. Moreover, the continuing evolution of the US financial system may have increased the likelihood of excessive corporate leverage and the odds of such leverage becoming a source of financial instability. Thus, the conference also includes studies that delve into some of these structural changes and their financial stability implications, including the experience in financial markets and the real economy in the wake of the pandemic. Also explored is what the “new normal” environment characterized by persistently low interest rates will mean for businesses’ debt capacity and financial stability going forward, as well as for policies that have the potential to curb excessive leverage and mitigate adverse consequences of high leverage.

2021 Speakers

Kenneth C. Montgomery
Interim President and CEO, Federal Reserve Bank of Boston

Benjamin M. Friedman
William Joseph Maier Professor of Political Economy, Harvard University

Efraim Benmelech
Harold L. Stuart Professor of Finance and Director of the Guthrie Center for Real Estate Research, Kellogg School of Management

Moritz Schularick
Professor of Economics, Sciences Po Paris and University of Bonn

David A. Rismiller Chair in Finance
Fisher College of Business, Ohio State University

Victoria Ivashina
Lovett-Learned Chaired Professor of Finance, Harvard Business School

Falk Bräuning
Senior Economist and Policy Advisor, Federal Reserve Bank of Boston

José L. Filat
Senior Economist and Policy Advisor, Federal Reserve Bank of Boston

J. Christina Wang
Senior Economist and Policy Advisor, Federal Reserve Bank of Boston

Simon Gilchrist
Professor of Economics, New York University

Adam Posen
President, Peterson Institute for International Economics

Manuel Adelino
Associate Professor of Finance, Fuqua School of Business, Duke University

Antoinette Schoar
Stewart C. Myers-Horn Family Professor of Finance, Massachusetts Institute of Technology Sloan School of Management

Karen Dynan
Professor of the Practice, Department of Economics, Harvard University

Lara Loewenstein
Research Economist, Federal Reserve Bank of Cleveland

James A. Graaskamp
Chair and Professor, Department of Real Estate and Urban Land Economics, Wisconsin School of Business, University of Wisconsin-Madison

Paul S. Willen
Senior Economist and Policy Advisor, Federal Reserve Bank of Boston

Andra Ghent
Professor of Finance, University of Utah

Sir Paul Tucker
Senior Fellow, Harvard Business School

Ricardo A. M. R. Reis
Phillips Professor of Economics, London School of Economics and Political Science

Raghuram G. Rajan
Katherine Dusak Miller Distinguished Service Professor of Finance, University of Chicago Booth School of Business

Jeremy C. Stein
Moise Y. Safra Professor of Economics, Harvard University

Kristin J. Forbes
Jerome and Dorothy Lemelson Professor of Management and Global Economics, Massachusetts Institute of Technology Sloan School of Management

Luc Laeven
Director-General, Directorate General Research, European Central Bank

Klaas Knot
President, De Nederlandsche Bank, Vice Chair, Financial Stability Board