Leverage is key factor in threat posed by bubbles, study finds

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Federal Reserve of San Francisco

The amount of leverage in a housing or equity boom is the key factor in how much damage is done to the economy, a paper published this month by the Federal Reserve Bank of San Francisco says.

In Leveraged bubbles, Oscar Jordà, Moritz Schularick and Alan M Taylor present data concerning 17 housing and equity bubbles over the last 140 years. The result is "the first comprehensive assessment of the costs of price bubbles", the authors say.

They argue their work "an evidential basis" to an emerging

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