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The B.E. Journal of Macroeconomics

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Housing market and labor market search

Christopher Limnios
Published Online: 2018-11-14 | DOI: https://doi.org/10.1515/bejm-2018-0049

Abstract

Current models fail to concurrently account for several important empirical regularities in the housing and labor markets. I augment the Diamond-Mortensen-Pissarides (DMP) search and matching model of the labor market with a housing market characterized by search and matching frictions, integrating both markets in a coherent macroeconomic model. The model provides a framework to explain how shocks and frictions which originate in the labor market spill over into the housing market and vise versa. The model accounts for procyclical, serially correlated real estate values, rental rates and expected real estate appreciation. Further, it accounts for increases in wages, housing costs and willingness to commute as a result of increases in geographic amenities. The model is also consistent with the empirical relationship between vacancy rates in the housing market and separation rates in the labor market. Simulations demonstrate that certain land-use policies can mitigate permanent shocks to labor productivity and the level of geographic amenities.

This article offers supplementary material which is provided at the end of the article.

Keywords: housing frictions; labor frictions; search models

JEL Classification: E24 (Employment; Unemployment; Wages); J64 (labor search)

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About the article

Published Online: 2018-11-14


Citation Information: The B.E. Journal of Macroeconomics, 20180049, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2018-0049.

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