Land prices and unemployment |
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Affiliation: | 1. Guanghua School of Management and LMEQF, Peking University, Beijing 100871, China;2. School of Finance, Central University of Finance and Economics, Beijing 100081, China;3. China Economics and Management Academy, Central University of Finance and Economics, Beijing 100081, China |
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Abstract: | We integrate the housing market and the labor market in a dynamic general equilibrium model with credit and search frictions. We argue that the labor channel, combined with the standard credit channel, provides a strong transmission mechanism that can deliver a potential solution to the Shimer (2005) puzzle. The model is confronted with U.S. macroeconomic time series. The estimation results account for two prominent facts observed in the data. First, land prices and unemployment move in opposite directions over the business cycle. Second, a shock that moves land prices also generates the observed large volatility of unemployment. |
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Keywords: | Housing and labor markets Labor channel Real wage rigidity Intensive and extensive margins Unemployment |
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