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House Prices, Geographical Mobility, and Unemployment

Marcus Ingholt

No 17-06, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Geographical mobility correlates positively with house prices and negatively with unemployment over the U.S. business cycle. I present a DSGE model in which declining house prices and tight credit conditions impede the mobility of indebted workers. This reduces the workers’ cross-area competition for jobs, causing wages and unemployment to rise. A Bayesian estimation shows that this channel more than quadruples the response of unemployment to adverse housing market shocks. The estimation also shows that adverse housing market shocks caused the decline in mobility during the Great Recession. Absent this decline, the unemployment rate would have been 0.5 p.p. lower.

Keywords: Refinancing collateral constraint; Geographical mobility; Wage setting; DSGE model (search for similar items in EconPapers)
JEL-codes: D58 E24 E32 E44 R21 R23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
Date: 2017-04-10
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