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Home Equity, Mobility, and Macroeconomic Fluctuations

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  • Vincent Sterk

    (De Nederlandsche Bank, University of Amsterdam)

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    Abstract

    How does a fall in house prices a¤ect 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 di¢ cult to provide the downpayment 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 Society for Economic Dynamics in its series 2011 Meeting Papers with number 117.

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    Date of creation: 2011
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    Handle: RePEc:red:sed011:117

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    Cited by:
    1. Luca Sala & Ulf Söderstrom & Antonella Trigari, 2012. "Structural and Cyclical Forces in the Labor Market during the Great Recession: Cross-Country Evidence," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER International Seminar on Macroeconomics 2012, pages 345-404 National Bureau of Economic Research, Inc.
    2. Siddharth Kothari & Itay Saporta Eksten & Edison Yu, 2013. "Online Appendix to "The (Un)importance of Geographical Mobility in the Great Recession"," Technical Appendices, Review of Economic Dynamics 12-205, Review of Economic Dynamics.

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