Unemployment Insurance as a Housing Market Stabilizer

57 Pages Posted: 5 Dec 2012 Last revised: 21 Nov 2017

Joanne W. Hsu

Federal Reserve Board of Governors

David A. Matsa

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Brian Melzer

Federal Reserve Bank of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: August 2017

Abstract

This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across U.S. states and over time, we find that UI helps the unemployed avoid mortgage default. We estimate that UI expansions during the Great Recession prevented more than 1.3 million foreclosures and insulated home values from labor market shocks. The results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater. An optimal UI policy during housing downturns would weigh, among other benefits and costs, the deadweight losses avoided from preventing mortgage defaults.

Suggested Citation

Hsu, Joanne W. and Matsa, David A. and Melzer, Brian, Unemployment Insurance as a Housing Market Stabilizer (August 2017). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2185198 or http://dx.doi.org/10.2139/ssrn.2185198

Joanne W. Hsu

Federal Reserve Board of Governors ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

David A. Matsa (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8337 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Brian Melzer

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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