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Energy price shocks, household location patterns and housing crises: Theory and implications

JunJie Wu, Steven Sexton and David Zilberman

Energy Economics, 2019, vol. 80, issue C, 691-706

Abstract: The U.S. housing collapse in 2007 is widely blamed for inducing a financial crisis that spread to the real economy and caused a severe and prolonged downturn. This paper develops a model to investigate the role of gasoline price shocks in triggering the housing market collapse and identifies a new channel through which energy price shocks affect the financial market and the macro economy. Results suggest that unanticipated gasoline price shocks increase the cost of work commutes, lower the value of homes away from the city center, and increase foreclosure rates as homeowners either cannot afford mortgage payments amid elevated gas expenditures or seek to abandon underwater homes. The model predicts that gasoline price shocks disproportionately affect suburban households that face greater exposure due to longer commutes and lower incomes. Empirical evidence from the 2007–08 housing collapse is presented to corroborate this theory.

Keywords: Gasoline prices; Development patterns; Home values; Housing crisis (search for similar items in EconPapers)
JEL-codes: R14 R22 R38 R41 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.eneco.2019.01.021

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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