Financial Frictions, the Housing Market, and Unemployment

William Branch, Nicolas Petrosky-Nadeau and Guillaume Rocheteau

No 2014-26, Working Paper Series from Federal Reserve Bank of San Francisco

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)
Pages: 46 pages
Date: 2014-11
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Financial frictions, the housing market, and unemployment (2016)
Working Paper: Financial Frictions, the Housing Market, and Unemployment (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2014-26

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DOI: 10.24148/wp2014-26

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