IDEAS home Printed from https://ideas.repec.org/p/red/sed018/579.html
   My bibliography  Save this paper

Unemployment and the US housing market during the Great Recession

Author

Listed:
  • Pavel Krivenko

    (Stanford)

Abstract

This paper evaluates the role of unemployment scarring and fear thereof for the recent U.S. housing bust. I study a quantitative lifecycle model of the housing market, which features an income process that is consistent with the large and long-lasting impact of unemployment on future earnings documented in recent empirical work. The model features exogenous moving shocks consistent with survey evidence which shows that many households move for reasons unrelated to their financial situation. These shocks reduce the selection into moving, thereby amplifying the quantitative importance of unemployment shocks and tighter credit conditions in the recent bust. The reason is that movers are more sensitive to labor market and credit conditions because they are younger, have lower wealth, and less secure jobs. Housing policies such as mortgage subsidies help stabilize prices and reduce foreclosures, even if only a small fraction of homeowners receive them.

Suggested Citation

  • Pavel Krivenko, 2018. "Unemployment and the US housing market during the Great Recession," 2018 Meeting Papers 579, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:579
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2018/paper_579.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    2. Karl E. Case & Robert J. Shiller & Anne K. Thompson, 2012. "What Have They Been Thinking? Homebuyer Behavior in Hot and Cold Markets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(2 (Fall)), pages 265-315.
    3. Kurt Mitman, 2016. "Macroeconomic Effects of Bankruptcy and Foreclosure Policies," American Economic Review, American Economic Association, vol. 106(8), pages 2219-2255, August.
    4. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    5. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, March.
    6. S. Rao Aiyagari, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 659-684.
    7. Branch, William A. & Petrosky-Nadeau, Nicolas & Rocheteau, Guillaume, 2016. "Financial frictions, the housing market, and unemployment," Journal of Economic Theory, Elsevier, vol. 164(C), pages 101-135.
    8. Karen Kopecky & Richard Suen, 2010. "Finite State Markov-chain Approximations to Highly Persistent Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 701-714, July.
    9. Greg Kaplan & Kurt Mitman & Giovanni L. Violante, 2020. "The Housing Boom and Bust: Model Meets Evidence," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3285-3345.
    10. Robert Shimer, 2012. "Reassessing the Ins and Outs of Unemployment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 127-148, April.
    11. Steven J. Davis & Till Von Wachter, 2011. "Recessions and the Costs of Job Loss," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 42(2 (Fall)), pages 1-72.
    12. Daniel Greenwald, 2016. "The Mortgage Credit Channel of Macroeconomic Transmission," 2016 Meeting Papers 1551, Society for Economic Dynamics.
    13. Carlos Garriga & Aaron Hedlund, 2020. "Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession," American Economic Review, American Economic Association, vol. 110(6), pages 1603-1634, June.
    14. Janice Eberly & Arvind Krishnamurthy, 2014. "Efficient Credit Policies in a Housing Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 49(2 (Fall)), pages 73-136.
    15. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 695-717, June.
    16. Sommer, Kamila & Sullivan, Paul & Verbrugge, Randal, 2013. "The equilibrium effect of fundamentals on house prices and rents," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 854-870.
    17. Janice Eberly & Arvind Krishnamurthy, 2014. "Efficient Credit Policies in a Housing Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 45(2 (Fall)), pages 73-136.
    18. Stevens, Ann Huff, 1997. "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 165-188, January.
    Full references (including those not matched with items on IDEAS)

    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. Krivenko, Pavel, 2023. "The Role of Moving Shocks, Unemployment, and Policy in Understanding Housing Bust," Journal of Banking & Finance, Elsevier, vol. 154(C).
    2. Philip Jung & Moritz Kuhn, 2019. "Earnings Losses and Labor Mobility Over the Life Cycle," Journal of the European Economic Association, European Economic Association, vol. 17(3), pages 678-724.
    3. Eunseong Ma & Sarah Zubairy, 2021. "Homeownership And Housing Transitions: Explaining The Demographic Composition," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 599-638, May.
    4. Greg Kaplan & Kurt Mitman & Giovanni L. Violante, 2020. "The Housing Boom and Bust: Model Meets Evidence," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3285-3345.
    5. Arigoni, Filippo & McCann, Fergal & Yao, Fang, 2022. "Mortgage credit and house prices: evidence to inform macroprudential policy," Financial Stability Notes 11/FS/22, Central Bank of Ireland.
    6. Serdar Birinci, 2019. "Spousal Labor Supply Response to Job Displacement and Implications for Optimal Transfers," Working Papers 2019-020, Federal Reserve Bank of St. Louis, revised 25 Sep 2021.
    7. Joseph G. Altonji & Anthony A. Smith Jr. & Ivan Vidangos, 2013. "Modeling Earnings Dynamics," Econometrica, Econometric Society, vol. 81(4), pages 1395-1454, July.
    8. Ortego-Marti, Victor, 2017. "Loss of skill during unemployment and TFP differences across countries," European Economic Review, Elsevier, vol. 100(C), pages 215-235.
    9. Antonia Díaz & Belén Jerez & Juan Pablo Rincón-Zapatero, 2023. "Housing Prices and Credit Constraints in Competitive Search," The Economic Journal, Royal Economic Society, vol. 134(657), pages 220-270.
    10. Martin Eichenbaum & Sergio Rebelo & Arlene Wong, 2022. "State-Dependent Effects of Monetary Policy: The Refinancing Channel," American Economic Review, American Economic Association, vol. 112(3), pages 721-761, March.
    11. Adam M. Guren & Arvind Krishnamurthy & Timothy J. Mcquade, 2021. "Mortgage Design in an Equilibrium Model of the Housing Market," Journal of Finance, American Finance Association, vol. 76(1), pages 113-168, February.
    12. Fujita, Shigeru, 2018. "Declining labor turnover and turbulence," Journal of Monetary Economics, Elsevier, vol. 99(C), pages 1-19.
    13. Christopher L Foote & Lara Loewenstein & Paul S Willen, 2021. "Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(1), pages 229-259.
    14. Zhou, Jing, 2022. "Collateral quality and house prices," Journal of Economic Dynamics and Control, Elsevier, vol. 145(C).
    15. Hedlund, Aaron, 2016. "Illiquidity and its discontents: Trading delays and foreclosures in the housing market," Journal of Monetary Economics, Elsevier, vol. 83(C), pages 1-13.
    16. Carlos Garriga & Aaron Hedlund, 2020. "Mortgage Debt, Consumption, and Illiquid Housing Markets in the Great Recession," American Economic Review, American Economic Association, vol. 110(6), pages 1603-1634, June.
    17. Irina Merkurieva, 2018. "Late Career Job Loss and the Decision to Retire," Discussion Paper Series, School of Economics and Finance 201606, School of Economics and Finance, University of St Andrews.
    18. Gete, Pedro, 2020. "Expectations and the housing boom and bust. An open economy view," Journal of Housing Economics, Elsevier, vol. 49(C).
    19. Piskorski, Tomasz & Seru, Amit, 2021. "Debt relief and slow recovery: A decade after Lehman," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1036-1059.
    20. Jørgensen, Peter Lihn, 2023. "The global savings glut and the housing boom," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:red:sed018:579. 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: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    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.