Unemployment insurance as a housing market stabilizer

Joanne W. Hsu; David A. Matsa; Brian T. Melzer

doi:10.1257/aer.20140989

Unemployment insurance as a housing market stabilizer

Joanne W. Hsu, David A. Matsa, Brian T. Melzer

Finance

Research output: Contribution to journal › Article › peer-review

85 Scopus citations

Abstract

This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we fnd 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 benefts and costs, the deadweight losses avoided from preventing mortgage defaults.

Original language	English (US)
Pages (from-to)	49-81
Number of pages	33
Journal	American Economic Review
Volume	108
Issue number	1
DOIs	https://doi.org/10.1257/aer.20140989
State	Published - Jan 2018

Funding

* Hsu: Federal Reserve Board of Governors, 20th Street and Constitution Avenue NW, Washington, DC 20551 (email: [email protected]); Matsa: Kellogg School of Management, Northwestern University, 2211 Campus Drive, Evanston, IL 60208, and NBER (email: [email protected]); Melzer: Kellogg School of Management, Northwestern University, 2211 Campus Drive, Evanston, IL 60208 (email: b-melzer@kellogg. northwestern.edu). This paper was accepted to the AER under the guidance of Mark Aguiar, Coeditor. We thank Northwestern University’s Guthrie Center for Real Estate Research for financial support and Grant Clayton, Jonathan Cohen, Jesse Davis, Naveen Gohndi, Eric Kennedy, Jake Krimmel, Paolina Medina-Palma, and Kanis Saengchote for research assistance. For helpful comments and suggestions, we are grateful to Gene Amromin, Marieke Bos, Tal Gross, Jeanne Lafortune, Andreas Mueller, Matthew Notowidigdo, Jonathan Parker, Janneke Ratcliffe, Amit Seru, Roine Vestman, three anonymous referees, and seminar participants at the Boston College, Consumer Financial Protection Bureau, Cornell University, DePaul-Chicago Fed, Duke University, Massachussetts Institute of Technology, New York University, Northwestern University, Sveriges Riksbank, Texas A&M University, University of Arizona, University of California–Berkeley, University of California–Los Angeles, University of California– San Diego, University of Illinois–Chicago, University of Indiana, University of Mannheim, University of North Carolina, University of Texas, University of Virginia, University of Washington, Boulder Summer Conference on Consumer Financial Decision Making, Federal Reserve Bank of Cleveland Policy Summit, Federal Reserve Bank of Philadelphia Credit and Payments Conference, Finance UC Conference at Pontificia Universidad Católica de Chile, IBEFA Summer Meeting, NBER Conference on Poverty, Social Policy, and Inequality, NBER Summer Institute (Economics of Real Estate and Local Public Finance), and Norges Bank Workshop on Household Finance. This research was conducted with restricted access to Bureau of Labor Statistics (BLS) data. The views expressed here do not necessarily reflect the views of the BLS. Furthermore, the analysis and conclusions set forth in this paper are those of the authors and do not indicate concurrence by other members of the Federal Reserve research staff or the Board of Governors. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper.

ASJC Scopus subject areas

Economics and Econometrics

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1257/aer.20140989

Cite this

@article{14a9490cd30d4cdbb8797193af4de4c8,

title = "Unemployment insurance as a housing market stabilizer",

abstract = "This paper studies the impact of unemployment insurance (UI) on the housing market. Exploiting heterogeneity in UI generosity across US states and over time, we fnd 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 benefts and costs, the deadweight losses avoided from preventing mortgage defaults.",

author = "Hsu, {Joanne W.} and Matsa, {David A.} and Melzer, {Brian T.}",

note = "Funding Information: * Hsu: Federal Reserve Board of Governors, 20th Street and Constitution Avenue NW, Washington, DC 20551 (email: [email protected]); Matsa: Kellogg School of Management, Northwestern University, 2211 Campus Drive, Evanston, IL 60208, and NBER (email: [email protected]); Melzer: Kellogg School of Management, Northwestern University, 2211 Campus Drive, Evanston, IL 60208 (email: b-melzer@kellogg. northwestern.edu). This paper was accepted to the AER under the guidance of Mark Aguiar, Coeditor. We thank Northwestern University{\textquoteright}s Guthrie Center for Real Estate Research for financial support and Grant Clayton, Jonathan Cohen, Jesse Davis, Naveen Gohndi, Eric Kennedy, Jake Krimmel, Paolina Medina-Palma, and Kanis Saengchote for research assistance. For helpful comments and suggestions, we are grateful to Gene Amromin, Marieke Bos, Tal Gross, Jeanne Lafortune, Andreas Mueller, Matthew Notowidigdo, Jonathan Parker, Janneke Ratcliffe, Amit Seru, Roine Vestman, three anonymous referees, and seminar participants at the Boston College, Consumer Financial Protection Bureau, Cornell University, DePaul-Chicago Fed, Duke University, Massachussetts Institute of Technology, New York University, Northwestern University, Sveriges Riksbank, Texas A&M University, University of Arizona, University of California–Berkeley, University of California–Los Angeles, University of California– San Diego, University of Illinois–Chicago, University of Indiana, University of Mannheim, University of North Carolina, University of Texas, University of Virginia, University of Washington, Boulder Summer Conference on Consumer Financial Decision Making, Federal Reserve Bank of Cleveland Policy Summit, Federal Reserve Bank of Philadelphia Credit and Payments Conference, Finance UC Conference at Pontificia Universidad Cat{\'o}lica de Chile, IBEFA Summer Meeting, NBER Conference on Poverty, Social Policy, and Inequality, NBER Summer Institute (Economics of Real Estate and Local Public Finance), and Norges Bank Workshop on Household Finance. This research was conducted with restricted access to Bureau of Labor Statistics (BLS) data. The views expressed here do not necessarily reflect the views of the BLS. Furthermore, the analysis and conclusions set forth in this paper are those of the authors and do not indicate concurrence by other members of the Federal Reserve research staff or the Board of Governors. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper.",

year = "2018",

month = jan,

doi = "10.1257/aer.20140989",

language = "English (US)",

volume = "108",

pages = "49--81",

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issn = "0002-8282",

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AU - Melzer, Brian T.

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Unemployment insurance as a housing market stabilizer

Abstract

Funding

ASJC Scopus subject areas

UN SDGs

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Replication data for: Unemployment Insurance as a Housing Market Stabilizer

Cite this

Unemployment insurance as a housing market stabilizer

Abstract

Funding

ASJC Scopus subject areas

UN SDGs

Access to Document

Other files and links

Fingerprint

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Replication data for: Unemployment Insurance as a Housing Market Stabilizer

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