Abstract

http://ssrn.com/abstract=2237525
 
 

References (59)



 
 

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Unemployment, Financial Frictions, and the Housing Market


Nicolas Petrosky-Nadeau


Carnegie Mellon University - David A.Tepper School of Business

Guillaume Rocheteau


University of California, Irvine; Federal Reserve Banks - Federal Reserve Bank of Cleveland

March 21, 2013


Abstract:     
We develop and calibrate a two-sector, search-matching model of the labor market augmented to incorporate a housing market and a frictional goods market. The labor market is divided into a construction sector and a non-housing sector, and there is perfect mobility of unemployed workers across sectors. In the frictional goods market households, who lack commitment, finance random consumption opportunities with home equity loans. The model can generate multiple steady-state equilibria across which housing prices are negatively correlated with unemployment. Relaxing lending standards typically reduces unemployment, but it can have non-monotonic effects on housing prices and supply. It also leads to a reallocation of workers across sectors, the direction of which depends on firm's market power in the goods market. Quantitatively, we find that innovations that generate an increase in home equity-based borrowing of the same magnitude as the one observed during the 90's explain a reduction in the steady-state unemployment rate between 1/2 and 1 percentage point depending on the calibration strategy.

Number of Pages in PDF File: 66

Keywords: D82, D83, E40, E50

JEL Classification: credit, unemployment, housing, limited commitment, liquidity

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Date posted: March 24, 2013 ; Last revised: April 12, 2013

Suggested Citation

Petrosky-Nadeau, Nicolas and Rocheteau, Guillaume, Unemployment, Financial Frictions, and the Housing Market (March 21, 2013). Available at SSRN: http://ssrn.com/abstract=2237525 or http://dx.doi.org/10.2139/ssrn.2237525

Contact Information

Nicolas Petrosky-Nadeau (Contact Author)
Carnegie Mellon University - David A.Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
HOME PAGE: http://sites.google.com/site/npetroskynadeau/

Guillaume Rocheteau
University of California, Irvine ( email )
Campus Drive
Irvine, CA 62697-3125
United States
Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )
East 6th & Superior
Cleveland, OH 44101-1387
United States
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References:  59
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