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Behind the Great Recession: Job Search and Housing Decisions

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  • Silvio Rendon

    ()
    (Department of Economics, Stony Brook University)

  • Nuria Quella

    ()

Abstract

In this paper we analyze a mechanism that is particularly relevant to the workings of the Great Recession: we explain how easier home fi?nancing and higher homeownership rates increase unemployment rates. To this purpose we build a model of job search with liquid wealth accumulation and consumption of housing, that can be rented, bought on credit, or sold. In our model, more relaxed house credit conditions increase workers?reservation wages, making them more selective in their job search. More selective job searches deteriorate employment transitions: job ?nding and job-to-job transitions rates decline while job loss rates increase, causing the overall unemployment rate to rise. We estimate this model structurally using NLSY data from 1978 until 2005. We fi?nd that more relaxed housing lending conditions, particularly lower downpayment requirements, increase unemployment rates by 6 percent points. We also fi?nd that declining labor demand decreases homeownership rates by 14 percent points.

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File URL: http://www.sunysb.edu/economics/research/papers/2013/JSHousing.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Stony Brook University, Department of Economics in its series Department of Economics Working Papers with number 13-03.

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Date of creation: Nov 2013
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Handle: RePEc:nys:sunysb:13-03

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Postal: Stony Brook, NY 11794-4384
Phone: (631)632-7540
Fax: (631)632-7516
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Web page: http://www.stonybrook.edu/economics
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Related research

Keywords: Job Search; Housing; Savings; Structural Estimation.;

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References

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  1. Iacoviello, Matteo & Pavan, Marina, 2013. "Housing and debt over the life cycle and over the business cycle," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 221-238.
  2. Martin Gervais, 1998. "Housing Taxation and Capital Accumulation," UWO Department of Economics Working Papers 9807, University of Western Ontario, Department of Economics.
  3. Silvio Rendon, 2002. "Job search and asset accumulation under borrowing constraints," Economics Working Papers 649, Department of Economics and Business, Universitat Pompeu Fabra.
  4. Jeremy Lise, 2013. "On-the-Job Search and Precautionary Savings," Review of Economic Studies, Oxford University Press, vol. 80(3), pages 1086-1113.
  5. Marcus Hagedorn & Fatih Karahan & Iourii Manovskii & Kurt Mitman, 2013. "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects," NBER Working Papers 19499, National Bureau of Economic Research, Inc.
  6. Atif R. Mian & Amir Sufi, 2009. "House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis," NBER Working Papers 15283, National Bureau of Economic Research, Inc.
  7. Fang Yang, 2009. "Consumption over the Life Cycle: How Different is Housing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 423-443, July.
  8. James Costain, 1997. "Unemployment insurance with endogenous search intensity and precautionary saving," Economics Working Papers 243, Department of Economics and Business, Universitat Pompeu Fabra.
  9. Matthew Chambers & Carlos Garriga & Don Schlagenhauf, 2007. "Accounting for changes in the homeownership rate," Working Papers 2007-034, Federal Reserve Bank of St. Louis.
  10. Paul Flatau & Matt Forbes & Patric H. Hendershott, 2003. "Homeownership and Unemployment: The Roles of Leverage and Public Housing," NBER Working Papers 10021, National Bureau of Economic Research, Inc.
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Blog mentions

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  1. Did home ownership made things worse in the Great Recession?
    by Economic Logician in Economic Logic on 2014-01-14 16:38:00

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