Home Equity, Mobility, and Macroeconomic Fluctuations

Vincent Sterk
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Vincent Sterk: De Nederlandsche Bank, University of Amsterdam

No 117, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: 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.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:117

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