Seminar: Home Equity, Mobility, and Macroeconomic Fluctuations

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Vincent Sterk (UCL)

Discussant: Adam Elbourne (CPB)

Language: English

Registration: Please register by sending an email to seminars@cpb.nl.

Abstract subject:
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, after which it becomes more difficult to provide the downpayment required for a new mortgage loan. Unemployed homeowners therefore 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 house lock channel during the Great Recession.

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