Financial frictions, the housing market, and unemployment

William Branch, Nicolas Petrosky-Nadeau and Guillaume Rocheteau

Journal of Economic Theory, 2016, vol. 164, issue C, 101-135

Abstract: We develop a two-sector search-matching model of the labor market with imperfect mobility of workers, augmented to incorporate a housing market and a frictional goods market. Homeowners use home equity as collateral to finance idiosyncratic consumption opportunities. A financial innovation that raises the acceptability of homes as collateral raises house prices and reduces unemployment. It also triggers a reallocation of workers, with the direction of the change depending on firms' market power in the goods market. A calibrated version of the model under adaptive learning can account for house prices, sectoral labor flows, and unemployment rate changes over 1996–2010.

Keywords: Credit; Unemployment; Limited commitment; Liquidity (search for similar items in EconPapers)
JEL-codes: D82 D83 E40 E50 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (23)

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Related works:
Working Paper: Financial Frictions, the Housing Market, and Unemployment (2015)
Working Paper: Financial Frictions, the Housing Market, and Unemployment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:164:y:2016:i:c:p:101-135

DOI: 10.1016/j.jet.2015.07.008

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