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Home Equity, Mobility, and Macroeconomic Fluctuations

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  • Vincent Sterk

Abstract

How does a fall in house prices affect real activity? This paper presents a business cycle model in which a decline in house prices reduces geographical mobility, creating distortions in the labor market. This happens because homeowners face declines in their home equity levels, after which it becomes more difficult to provide the down-payment required for a new mortgage loan. Unemployed homeowners therefore turn down job offers that would require them to move. The model explains joint cyclical patterns in housing and labor market aggregates, as well as the puzzling breakdown of the U.S. Beveridge curve that occurred during 2009.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 265.

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Date of creation: Oct 2010
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Handle: RePEc:dnb:dnbwpp:265

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Keywords: Housing Markets; Labor Markets; Refinancing Constraints;

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  1. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
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Cited by:
  1. Plamen Nenov, 2013. "Regional Mismatch and Labor Reallocation in an Equilibrium Model of Migration," 2013 Meeting Papers 565, Society for Economic Dynamics.
  2. Siddharth Kothari & Itay Saporta Eksten & Edison Yu, 2013. "The (Un)importance of Geographical Mobility in the Great Recession"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 553-563, July.
  3. Valletta, Robert G., 2013. "House lock and structural unemployment," Labour Economics, Elsevier, vol. 25(C), pages 86-97.
  4. Bart Hobijn & Aysegül Sahin, 2012. "Beveridge curve shifts across countries since the Great Recession," Working Paper Series 2012-24, Federal Reserve Bank of San Francisco.
  5. Mary Daly & Bart Hobijn & Rob Valletta, 2011. "The recent evolution of the natural rate of unemployment," Working Paper Series 2011-05, Federal Reserve Bank of San Francisco.
  6. Jonathan Halket & Santhanagopalan Vasudev, 2012. "Home Ownership, Savings, and Mobility Over The Life Cycle," Economics Discussion Papers 712, University of Essex, Department of Economics.
  7. Robert G. Valletta, 2012. "House lock and structural unemployment," Working Paper Series 2012-25, Federal Reserve Bank of San Francisco.
  8. Luca Sala & Ulf S�derstr�m & Antonella Trigari, 2013. "Structural and Cyclical Forces in the Labor Market during the Great Recession: Cross-Country Evidence," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 345 - 404.
  9. Jonathan Halket & Santhanagopalan Vasudev, 2014. "Saving Up or Settling Down: Home Ownership over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 345-366, April.
  10. Mary C. Daly & Bart Hobijn & Aysegül Sahin & Robert G. Valletta, 2012. "A Search and Matching Approach to Labor Markets: Did the Natural Rate of Unemployment Rise?," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 3-26, Summer.
  11. Valletta, Robert G., 2012. "House Lock and Structural Unemployment," IZA Discussion Papers 7002, Institute for the Study of Labor (IZA).
  12. Mary Daly & Bart Hobijn & Aysegul Sahin & Robert Valletta, 2011. "A Rising Natural Rate of Unemployment: Transitory or Permanent?," Tinbergen Institute Discussion Papers 11-160/3, Tinbergen Institute.
  13. Bart Hobijn, 2012. "The industry-occupation mix of U.S. job openings and hires," Working Paper Series 2012-09, Federal Reserve Bank of San Francisco.
  14. Mary Daly & Bart Hobijn & Aysegul Sahin & Robert Valletta, 2011. "A Rising Natural Rate of Unemployment: Transitory or Permanent?," Tinbergen Institute Discussion Papers 11-160/3, Tinbergen Institute.

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