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Home equity, mobility, and macroeconomic fluctuations

Sterk, V; (2015) Home equity, mobility, and macroeconomic fluctuations. Journal of Monetary Economics , 74 pp. 16-32. 10.1016/j.jmoneco.2015.04.005. Green open access

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Abstract

How does a fall in house prices affect real activity? This paper presents a tractable 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, which makes it more difficult to provide the downpayment required for a new mortgage loan. Therefore, unemployed homeowners more often turn down job offers that would require them to move. The model can account for joint cyclical patterns in housing and labor market aggregates, and predicts a breakdown of the Beveridge curve in 2009. Counterfactual experiments are used to quantify the macroeconomic importance of the mobility channel during the Great Recession.

Type: Article
Title: Home equity, mobility, and macroeconomic fluctuations
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.jmoneco.2015.04.005
Publisher version: http://dx.doi.org/10.1016/j.jmoneco.2015.04.005
Language: English
Additional information: ©2015 The Author. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). Which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Keywords: Housing markets; Labor markets; Refinancing constraints; DSGE
UCL classification: UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/1468863
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