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Financial frictions, the housing market, and unemployment

Listed author(s):
  • Branch, William A.
  • Petrosky-Nadeau, Nicolas
  • Rocheteau, Guillaume

We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. It also triggers a reallocation of workers, with the direction of the change depending on firms' market power in the goods market. A calibrated version of the model under adaptive learning can account for house prices, sectoral labor flows, and unemployment rate changes over 1996–2010.

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File URL: http://www.sciencedirect.com/science/article/pii/S0022053115001313
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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 164 (2016)
Issue (Month): C ()
Pages: 101-135

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Handle: RePEc:eee:jetheo:v:164:y:2016:i:c:p:101-135
DOI: 10.1016/j.jet.2015.07.008
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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