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House Prices and Job Losses


  • Gabor Pinter

    () (Bank of England
    Centre for Macroeconomics (CFM))


Why are house prices -80% correlated with job losses over the UK business cycle? My paper studies this striking fact together with the strong comovements between house prices and labour market variables in general. First, a regional panel is estimated to quantify the impact of house prices on the unemployment, job finding and job separation rates, whereby rejection rates of planning applications are used as instruments to find exogenous variation in house prices. Second, an orthogonalised VAR is used to estimate the aggregate impact of house price shocks. Both methods confirm the large impact of house price shocks on labour market variables and credit supply. To understand the mechanism, a general equilibrium model with collateral constraints, endogenous job separation and housing shocks is confronted with macroeconomic data via Bayesian methods. The results suggest that shocks to house prices (i) explain about 10% of output fluctuations and about 20% of fluctuations in corporate credit, unemployment and job separation rates via the collateral channel over the forecast horizon, and (ii) were a major cause in triggering the 1990 and 2008 recessions in the UK.

Suggested Citation

  • Gabor Pinter, 2015. "House Prices and Job Losses," Discussion Papers 1507, Centre for Macroeconomics (CFM).
  • Handle: RePEc:cfm:wpaper:1507

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    References listed on IDEAS

    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, January.
    2. Marta Banbura & Domenico Giannone & Lucrezia Reichlin, 2010. "Large Bayesian vector auto regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(1), pages 71-92.
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    4. Christian A. L. Hilber & Wouter Vermeulen, 2016. "The Impact of Supply Constraints on House Prices in England," Economic Journal, Royal Economic Society, vol. 126(591), pages 358-405, March.
    5. Iskrev, Nikolay, 2010. "Local identification in DSGE models," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 189-202, March.
    6. Thomas Chaney & David Sraer & David Thesmar, 2012. "The Collateral Channel: How Real Estate Shocks Affect Corporate Investment," American Economic Review, American Economic Association, vol. 102(6), pages 2381-2409, October.
    7. Zanetti, Francesco, 2011. "Labor market institutions and aggregate fluctuations in a search and matching model," European Economic Review, Elsevier, vol. 55(5), pages 644-658, June.
    8. Sterk, Vincent, 2015. "Home equity, mobility, and macroeconomic fluctuations," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 16-32.
    9. Jennifer C. Smith, 2011. "The Ins and Outs of UK Unemployment," Economic Journal, Royal Economic Society, vol. 121(552), pages 402-444, May.
    10. Amaral, Pedro S. & Tasci, Murat, 2016. "The cyclical behavior of equilibrium unemployment and vacancies across OECD countries," European Economic Review, Elsevier, vol. 84(C), pages 184-201.
    11. Mumtaz, Haroon & Zanetti, Francesco, 2016. "The Effect Of Labor And Financial Frictions On Aggregate Fluctuations," Macroeconomic Dynamics, Cambridge University Press, vol. 20(01), pages 313-341, January.
    12. Leduc, Sylvain & Liu, Zheng, 2016. "Uncertainty shocks are aggregate demand shocks," Journal of Monetary Economics, Elsevier, vol. 82(C), pages 20-35.
    13. Simon Burgess & Hélène Turon, 2005. "Unemployment dynamics in Britain," Economic Journal, Royal Economic Society, vol. 115(503), pages 423-448, April.
    14. Robert E. Hall, 2005. "Employment Efficiency and Sticky Wages: Evidence from Flows in the Labor Market," The Review of Economics and Statistics, MIT Press, vol. 87(3), pages 397-407, August.
    15. Renato Faccini & Stephen Millard & Francesco Zanetti, 2013. "Wage Rigidities in an Estimated Dynamic, Stochastic, General Equilibrium Model of the UK Labour Market," Manchester School, University of Manchester, vol. 81, pages 66-99, September.
    16. Burgess, Stephen & Fernandez-Corugedo, Emilio & Groth, Charlotta & Harrison, Richard & Monti, Francesca & Theodoridis, Konstantinos & Waldron, Matt, 2013. "The Bank of England's forecasting platform: COMPASS, MAPS, EASE and the suite of models," Bank of England working papers 471, Bank of England.
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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. House Prices and Job Losses
      by bankunderground in Bank Underground on 2015-12-11 13:30:42
    2. 'House Prices and Job Losses'
      by Mark Thoma in Economist's View on 2015-12-11 06:15:00


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    Cited by:

    1. Saleem Bahaj & Angus Foulis & Gabor Pinter, 2017. "Home Values and Firm Behaviour," Discussion Papers 1724, Centre for Macroeconomics (CFM).
    2. Ryan Niladri Banerjee & Kristian S Blickle, 2016. "Housing collateral and small firm activity in Europe," BIS Working Papers 575, Bank for International Settlements.
    3. Gabor Pinter & Angus Foulis & Saleem Bahaj, 2016. "The Residential Collateral Channel," 2016 Meeting Papers 502, Society for Economic Dynamics.
    4. repec:aes:amfeco:v:46:y:2017:i:19:p:682 is not listed on IDEAS
    5. Garreth Rule, 2015. "Understanding the central bank balance sheet," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 32.

    More about this item


    Business Cycle; House Prices; Financial Frictions; Labour Market Frictions;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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