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Home Equity, Mobility, and Macroeconomic Fluctuations

  • Vincent Sterk

How does a fall in house prices affect 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 difficult to provide the down-payment 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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File URL: http://www.dnb.nl/binaries/Working%20paper%20265_tcm46-241519.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 265.

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Date of creation: Oct 2010
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Handle: RePEc:dnb:dnbwpp:265
Contact details of provider: Postal: Postbus 98, 1000 AB Amsterdam
Web page: http://www.dnb.nl/en/

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  1. Garey Ramey & Wouter J. den Haan & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June.
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