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Home equity, mobility, and macroeconomic fluctuations

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  • Sterk, Vincent

Abstract

How does a fall in house prices affect real activity? This paper presents a tractable 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, which makes it more difficult to provide the downpayment required for a new mortgage loan. Therefore, unemployed homeowners more often turn down job offers that would require them to move. The model can account for joint cyclical patterns in housing and labor market aggregates, and predicts a breakdown of the Beveridge curve in 2009. Counterfactual experiments are used to quantify the macroeconomic importance of the mobility channel during the Great Recession.

Suggested Citation

  • Sterk, Vincent, 2015. "Home equity, mobility, and macroeconomic fluctuations," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 16-32.
    • Handle: RePEc:eee:moneco:v:74:y:2015:i:c:p:16-32
    DOI: 10.1016/j.jmoneco.2015.04.005
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    Cited by:

    1. Karahan, Fatih & Rhee, Serena, 2019. "Geographic reallocation and unemployment during the Great Recession: The role of the housing bust," Journal of Economic Dynamics and Control, Elsevier, vol. 100(C), pages 47-69.
    2. Andrea Camilli, 2020. "Labor market institutions and homeownership," Working Papers 440, University of Milano-Bicocca, Department of Economics, revised May 2020.
    3. Ravn, Morten O. & Sterk, Vincent, 2017. "Job uncertainty and deep recessions," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 125-141.
    4. Gábor Pintér, 2019. "House Prices and Job Losses," The Economic Journal, Royal Economic Society, vol. 129(618), pages 991-1013.
    5. van Veldhuizen, Sander & Vogt, Benedikt & Voogt, Bart, 2020. "Negative home equity reduces household mobility: Evidence from administrative data," Journal of Housing Economics, Elsevier, vol. 47(C).
    6. Matthaei, Stephan & Stähler, Nikolai, 2016. "Macroeconomic implications of the German financial equalization system," VfS Annual Conference 2016 (Augsburg): Demographic Change 145695, Verein für Socialpolitik / German Economic Association.
    7. Carlos Garriga & Aaron Hedlund, 2019. "Crises in the Housing Market: Causes, Consequences, and Policy Lessons," Working Papers 2019-33, Federal Reserve Bank of St. Louis.
    8. Gan, Li & Wang, Pengfei & Zhang, Qinghua, 2018. "Market thickness and the impact of unemployment on housing market outcomes," Journal of Monetary Economics, Elsevier, vol. 98(C), pages 27-49.
    9. Andrea Camilli & Pedro Gomes, 2023. "Public employment and homeownership dynamics," Public Choice, Springer, vol. 194(1), pages 101-155, January.
    10. Parkhomenko, Andrii, 2016. "Opportunity to Move: Macroeconomic Effects of Relocation Subsidies," MPRA Paper 75256, University Library of Munich, Germany.
    11. Chu, Shiou-Yen, 2018. "Macroeconomic policies and housing market in Taiwan," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 404-421.
    12. Marcus Moelbak Ingholt, 2017. "House Prices, Geographical Mobility, and Unemployment," Discussion Papers 17-06, University of Copenhagen. Department of Economics.
    13. Vives Coscojuela, Cecilia, 2015. "Geographical mobility and the labour market," IKERLANAK 15485, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    14. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    15. Bielecki, Marcin & Stähler, Nikolai, 2022. "Labor Tax Reductions In Europe: The Role Of Property Taxation," Macroeconomic Dynamics, Cambridge University Press, vol. 26(2), pages 419-451, March.
    16. Vives Coscojuela, Cecilia, 2018. "Housing Tenure, Geographical Mobility and the Labour Market: the Role of the Employment Exit Rate," IKERLANAK 30207, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    17. Kerr, Sari Pekkala & Kerr, William R. & Nanda, Ramana, 2022. "House prices, home equity and entrepreneurship: Evidence from U.S. census micro data," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 103-119.
    18. Daniel L. Tortorice, 2019. "Long-Run Expectations, Learning and the US Housing Market," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(4), pages 497-531, October.
    19. Petr Sedlacek, 2016. "The aggregate matching function and job search from employment and out of the labor force," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 16-28, July.
    20. Botsch, Matthew J. & Morris, Stephen D., 2021. "Job loss risk, expected mobility, and home ownership," Journal of Housing Economics, Elsevier, vol. 53(C).

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