The Implications of High Leverage for Financial Instability Risk, Real Economic Activity, and Appropriate Policy Responses The Implications of High Leverage for Financial Instability Risk, Real Economic Activity, and Appropriate Policy Responses

65th Economic Conference 65th Economic Conference

November 8, 2021
10:00 A.M. – 2:00 P.M.
November 9, 2021
9:30 A.M. – 11:45 A.M.
November 10, 2021
9:30 A.M. – 12:45 P.M.
Registration information below

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.

The Federal Reserve Bank of Boston Economic Research Conference Series fosters discussion and critical engagement among academics, central bankers, policymakers, and other experts on important economic policy topics.

Monday, November 8, 2021

10:00 a.m. - 2:00 p.m.

Welcoming Remarks

Eric S. Rosengren

President and Chief Executive Officer
Federal Reserve Bank of Boston


Program Moderator

Benjamin M. Friedman

William Joseph Maier Professor of Political Economy
Harvard University


Paper 1: Leverage and the Macroeconomy

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

Moritz Schularick
Professor of Economics
University of Bonn

Paper 2: Evolution of Debt Financing toward Less Regulated Financial Intermediaries

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

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

Paper 3: Is High Corporate Leverage a Drag on the Economic Recovery?

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

Tuesday, November 9, 2021

9:30 a.m. - 11:45 a.m.

Program Moderator

Adam Posen

Peterson Institute for International Economics


Paper 4: How Important Was Household Leverage in the Great Recession? Time Series versus Cross-Sectional Evidence

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


Paper 5: Resolving Commercial Real Estate Distress after the COVID-19 Pandemic: Real versus Financial Resolutions

Lara Loewenstein
Research Economist
Federal Reserve Bank of Cleveland

Timothy Riddiough
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

Wednesday, November 10, 2021

9:30 a.m. - 12:45 p.m.


Sir Paul Tucker

Senior Fellow
Systemic Risk Council


Panel 1: Implications of a New Normal Environment Characterized by Low Interest Rates and a Changed Monetary Policy Reaction Function


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


Panel 2: The Toolkit of Policies in the Brave New World of Debt


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

Luc Laeven
Directorate General Research
European Central Bank

Klaas Knot
De Nederlandsche Bank

Research Publications

New England Economic Indicators, Current Policy Perspectives, Research Reports, Policy Reports, and Working Papers

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