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Home Equity, Mobility, and Macroeconomic Fluctuations

  • Vincent Sterk

    (De Nederlandsche Bank, University of Amsterdam)

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    How does a fall in house prices a¤ect 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 di¢ cult to provide the downpayment 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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    Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 117.

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    Date of creation: 2011
    Date of revision:
    Handle: RePEc:red:sed011:117
    Contact details of provider: Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA
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