IDEAS home Printed from https://ideas.repec.org/a/eee/moneco/v119y2021icp40-57.html
   My bibliography  Save this article

Local scars of the US housing crisis

Author

Listed:
  • Bhattarai, Saroj
  • Schwartzman, Felipe
  • Yang, Choongryul

Abstract

The 2006–09 US housing crisis had scarring local effects. For a given county, a housing shock generating a 10% reduction in housing wealth from 2006 through 2009 led to a 4.4% decline in employment by 2018 and a commensurate decline in value added. This persistent local effect occurred despite the shock having no significant impact on labor productivity. The local labor market adjustment to the housing shock was particularly costly: local wages did not respond, and long-run convergence in the local labor market slack instead took place entirely through population losses in affected regions. Moreover, the 2002–06 housing boom does not generate significant employment gains, indicating that the employment losses relative to 2006 are also losses relative to the counterfactual case in which there was no housing cycle.

Suggested Citation

  • Bhattarai, Saroj & Schwartzman, Felipe & Yang, Choongryul, 2021. "Local scars of the US housing crisis," Journal of Monetary Economics, Elsevier, vol. 119(C), pages 40-57.
    • Handle: RePEc:eee:moneco:v:119:y:2021:i:c:p:40-57
    DOI: 10.1016/j.jmoneco.2021.02.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304393221000167
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmoneco.2021.02.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Veronica Guerrieri & Guido Lorenzoni, 2017. "Credit Crises, Precautionary Savings, and the Liquidity Trap," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(3), pages 1427-1467.
    2. Alejandro Justiniano & Giorgio Primiceri & Andrea Tambalotti, 2015. "Household leveraging and deleveraging," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(1), pages 3-20, January.
    3. Martin Beraja & Erik Hurst & Juan Ospina, 2019. "The Aggregate Implications of Regional Business Cycles," Econometrica, Econometric Society, vol. 87(6), pages 1789-1833, November.
    4. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1253-1296.
    5. Joe Vavra & Johannes Stroebel, 2014. "House Prices and Retail Prices," 2014 Meeting Papers 72, Society for Economic Dynamics.
    6. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2017. "Secular Stagnation: Policy Options and the Cyclical Sensitivity in Estimates of Potential Output," Working Papers 01/2017, National Bank of Ukraine.
    7. Johannes Stroebel & Joseph Vavra, 2019. "House Prices, Local Demand, and Retail Prices," Journal of Political Economy, University of Chicago Press, vol. 127(3), pages 1391-1436.
    8. Atif Mian & Kamalesh Rao & Amir Sufi, 2013. "Household Balance Sheets, Consumption, and the Economic Slump," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(4), pages 1687-1726.
    9. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    10. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2010. "Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 536-598, June.
    11. Danny Yagan, 2019. "Employment Hysteresis from the Great Recession," Journal of Political Economy, University of Chicago Press, vol. 127(5), pages 2505-2558.
    12. John Grigsby & Erik Hurst & Ahu Yildirmaz, 2021. "Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data," American Economic Review, American Economic Association, vol. 111(2), pages 428-471, February.
    13. Bill Dupor & Marios Karabarbounis & Marianna Kudlyak & M Saif Mehkari, 2023. "Regional Consumption Responses and the Aggregate Fiscal Multiplier," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 90(6), pages 2982-3021.
    14. Callum Jones & Virgiliu Midrigan & Thomas Philippon, 2011. "Household Leverage and the Recession," NBER Working Papers 16965, National Bureau of Economic Research, Inc.
    15. Adam M Guren & Alisdair McKay & Emi Nakamura & Jón Steinsson, 2021. "Housing Wealth Effects: The Long View," Review of Economic Studies, Oxford University Press, vol. 88(2), pages 669-707.
    16. Mark Gertler & Simon Gilchrist, 2018. "What Happened: Financial Factors in the Great Recession," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 3-30, Summer.
    17. Steven J. Davis & Prakash Lougani & Ramamohan Mahidhara, 1997. "Regional Labor Fluctuations: Oil Shocks, Military Spending, and Other Driving Forces," JCPR Working Papers 4, Northwestern University/University of Chicago Joint Center for Poverty Research.
    18. Teresa C Fort & John Haltiwanger & Ron S Jarmin & Javier Miranda, 2013. "How Firms Respond to Business Cycles: The Role of Firm Age and Firm Size," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(3), pages 520-559, August.
    19. Chamberlain, Gary & Rothschild, Michael, 1983. "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Econometrica, Econometric Society, vol. 51(5), pages 1281-1304, September.
    20. Olivier Coibion & Yuriy Gorodnichenko & Mauricio Ulate, 2018. "The Cyclical Sensitivity in Estimates of Potential Output," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 343-441.
    21. Michael Amior & Alan Manning, 2018. "The Persistence of Local Joblessness," American Economic Review, American Economic Association, vol. 108(7), pages 1942-1970, July.
    22. Steven J. Davis & John C. Haltiwanger, 2019. "Dynamism Diminished: The Role of Housing Markets and Credit Conditions," NBER Working Papers 25466, National Bureau of Economic Research, Inc.
    23. Diego Anzoategui & Diego Comin & Mark Gertler & Joseba Martinez, 2019. "Endogenous Technology Adoption and R&D as Sources of Business Cycle Persistence," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 67-110, July.
    24. Oscar Jorda & Alan Taylor & Sanjay Singh, 2019. "The Long-Run Effects of Monetary Policy," 2019 Meeting Papers 1307, Society for Economic Dynamics.
    25. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
    26. Simon Gilchrist, 2018. "The Real Effects of Credit Booms and Busts: A County-Level Analysis," 2018 Meeting Papers 99, Society for Economic Dynamics.
    27. Rafael Dix-Carneiro & Brian K. Kovak, 2017. "Trade Liberalization and Regional Dynamics," American Economic Review, American Economic Association, vol. 107(10), pages 2908-2946, October.
    28. Davidoff, Thomas, 2016. "Supply Constraints Are Not Valid Instrumental Variables for Home Prices Because They Are Correlated With Many Demand Factors," Critical Finance Review, now publishers, vol. 5(2), pages 177-206, December.
    29. Stephanie Schmitt-Grohé & Martín Uribe, 2016. "Downward Nominal Wage Rigidity, Currency Pegs, and Involuntary Unemployment," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1466-1514.
    30. David Albouy, 2008. "Are Big Cities Bad Places to Live? Estimating Quality of Life across Metropolitan Areas," NBER Working Papers 14472, National Bureau of Economic Research, Inc.
    31. John G. Fernald & Robert E. Hall & James H. Stock & Mark W. Watson, 2017. "The Disappointing Recovery of Output after 2009," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 48(1 (Spring), pages 1-81.
    32. Liyang Sun, 2018. "Implementing valid two-step identification-robust confidence sets for linear instrumental-variables models," Stata Journal, StataCorp LP, vol. 18(4), pages 803-825, December.
    33. Isaiah Andrews, 2018. "Valid Two-Step Identification-Robust Confidence Sets for GMM," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 337-348, May.
    34. Isaiah Andrews, 2016. "Conditional Linear Combination Tests for Weakly Identified Models," Econometrica, Econometric Society, vol. 84, pages 2155-2182, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lucidi, Francesco Simone & Semmler, Willi, 2023. "Long-run scarring effects of meltdowns in a small-scale nonlinear quadratic model," Journal of Macroeconomics, Elsevier, vol. 75(C).
    2. Francesco Furlanetto & Ørjan Robstad & Pål Ulvedal & Antoine Lepetit, 2020. "Estimating hysteresis effects," Working Paper 2020/13, Norges Bank.
    3. Chanda, Areendam & Cook, C. Justin, 2022. "Was India’s demonetization redistributive? Insights from satellites and surveys," Journal of Macroeconomics, Elsevier, vol. 73(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saroj Bhattarai & Choongryul Yang & Felipe Schwartzman, 2019. "The Persistent Employment E ffects of the 2006-09 U.S. Housing Wealth Collapse," 2019 Meeting Papers 671, Society for Economic Dynamics.
    2. Kerr, Sari Pekkala & Kerr, William R. & Nanda, Ramana, 2022. "House prices, home equity and entrepreneurship: Evidence from U.S. census micro data," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 103-119.
    3. Brian Greaney & Conor Walsh, 2023. "Demand, Growth, and Deleveraging," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 795-812, December.
    4. Glancy, David, 2021. "Housing bust, bank lending & employment: Evidence from multimarket banks," Journal of Banking & Finance, Elsevier, vol. 127(C).
    5. Mian, A. & Sufi, A., 2016. "Who Bears the Cost of Recessions? The Role of House Prices and Household Debt," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 255-296, Elsevier.
    6. Martin Beraja & Erik Hurst & Juan Ospina, 2019. "The Aggregate Implications of Regional Business Cycles," Econometrica, Econometric Society, vol. 87(6), pages 1789-1833, November.
    7. Guerrieri, V. & Uhlig, H., 2016. "Housing and Credit Markets," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1427-1496, Elsevier.
    8. Diego Daruich & Julian Kozlowski, 2023. "Macroeconomic Implications of Uniform Pricing," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 64-108, July.
    9. Knut Are Aastveit & Bruno Albuquerque & André K. Anundsen, 2023. "Changing Supply Elasticities and Regional Housing Booms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(7), pages 1749-1783, October.
    10. Mølbak Ingholt, Marcus, 2022. "Multiple Credit Constraints and Time-Varying Macroeconomic Dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 143(C).
    11. Francesco Furlanetto & Ørjan Robstad & Pål Ulvedal & Antoine Lepetit, 2020. "Estimating hysteresis effects," Working Paper 2020/13, Norges Bank.
    12. Saleem Bahaj & Angus Foulis & Gabor Pinter, 2020. "Home Values and Firm Behavior," American Economic Review, American Economic Association, vol. 110(7), pages 2225-2270, July.
    13. Mehrotra, Neil & Sergeyev, Dmitriy, 2021. "Financial shocks, firm credit and the Great Recession," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 296-315.
    14. Nikolai Roussanov & Michael Michaux & Hui Chen, 2011. "Houses as ATMs? Mortgage Refinancing and Macroeconomic Uncertainty," 2011 Meeting Papers 1369, Society for Economic Dynamics.
    15. David Berger & Veronica Guerrieri & Guido Lorenzoni & Joseph Vavra, 2018. "House Prices and Consumer Spending," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1502-1542.
    16. Philippon, Thomas & Midrigan, Virgiliu, 2011. "Household Leverage and the Recession," CEPR Discussion Papers 8381, C.E.P.R. Discussion Papers.
    17. Conklin, James N. & Frame, W. Scott & Gerardi, Kristopher & Liu, Haoyang, 2022. "Villains or scapegoats? The role of subprime borrowers in driving the U.S. housing boom," Journal of Financial Intermediation, Elsevier, vol. 51(C).
    18. Naqun Huang & Jing Li & Amanda Ross, 2022. "Housing wealth shocks, home equity withdrawal, and the claiming of Social Security retirement benefits," Economic Inquiry, Western Economic Association International, vol. 60(2), pages 620-644, April.
    19. Kaplan, Greg & Mitman, Kurt & Violante, Giovanni L., 2020. "Non-durable consumption and housing net worth in the Great Recession: Evidence from easily accessible data," Journal of Public Economics, Elsevier, vol. 189(C).
    20. Garga, Vaishali & Singh, Sanjay R., 2021. "Output hysteresis and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 871-886.

    More about this item

    Keywords

    US housing collapse; Scarring effects; Persistent regional effects; Local labor market slack; Downward wage rigidity;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:moneco:v:119:y:2021:i:c:p:40-57. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505566 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.