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House Prices, Household Leverage, and Entrepreneurship

  • Stefano Corradin

    (European Central Bank)

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    This paper estimates the causal effect of changes in home equity and household leverage on entrepreneurship and business ownership. Using a large individual-level survey dataset, we show that higher home equity increases the probability of transition into entrepreneurship, while higher household leverage has a significantly positive effect on business equity ownership. These effects are stronger in "hot" housing markets where agents expect house prices to keep increasing in the future. Our results persist when we use the topological elasticity of housing supply to generate variation in home equity that is orthogonal to entrepreneurial choice.

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    File URL: https://www.economicdynamics.org/meetpapers/2013/paper_631.pdf
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    Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 631.

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    Date of creation: 2013
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    Handle: RePEc:red:sed013:631
    Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
    Fax: 1-314-444-8731
    Web page: http://www.EconomicDynamics.org/society.htm
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    1. Eberly, Janice C, 1994. "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 403-36, June.
    2. Corradin, Stefano & Fillat, José L. & Vergara-Alert, Carles, 2012. "Optimal portfolio choice with predictability in house prices and transaction costs," Working Paper Series 1470, European Central Bank.
    3. Sanford J. Grossman & Guy Laroque, 1987. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," NBER Working Papers 2369, National Bureau of Economic Research, Inc.
    4. Marco Cagetti & Mariacristina De Nardi, 2003. "Entrepreneurship, frictions and wealth," Working Papers 620, Federal Reserve Bank of Minneapolis.
    5. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1253-1296, August.
    6. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
    7. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January.
    8. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
    9. Vincenzo Quadrini, 2000. "Entrepreneurship, Saving and Social Mobility," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 1-40, January.
    10. Raj Chetty & Adam Szeidl, 2007. "Consumption Commitments and Risk Preferences," The Quarterly Journal of Economics, MIT Press, vol. 122(2), pages 831-877, 05.
    11. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
    12. Francisco Buera, 2009. "A dynamic model of entrepreneurship with borrowing constraints: theory and evidence," Annals of Finance, Springer, vol. 5(3), pages 443-464, June.
    13. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1993. "Sticking it Out: Entrepreneurial Survival and Liquidity Constraints," NBER Working Papers 4494, National Bureau of Economic Research, Inc.
    14. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
    15. Quadrini, Vincenzo, 1999. "The Importance of Entrepreneurship for Wealth Concentration and Mobility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 1-19, March.
    16. Evans, David S & Leighton, Linda S, 1989. "Some Empirical Aspects of Entrepreneurship," American Economic Review, American Economic Association, vol. 79(3), pages 519-35, June.
    17. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
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