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  3. American Economic Review
  4. January 2018
  5. Unemployment Insurance as a Housing Market Stabilizer

Unemployment Insurance as a Housing Market Stabilizer

  • Joanne W. Hsu
  • David A. Matsa
  • Brian T. Melzer
American Economic Review
vol. 108, no. 1, January 2018
(pp. 49-81)
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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 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.

Citation

Hsu, Joanne W., David A. Matsa, and Brian T. Melzer. 2018. "Unemployment Insurance as a Housing Market Stabilizer." American Economic Review, 108 (1): 49-81. DOI: 10.1257/aer.20140989

Additional Materials

JEL Classification

  • D14 Household Saving; Personal Finance
  • E32 Business Fluctuations; Cycles
  • G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
  • J65 Unemployment Insurance; Severance Pay; Plant Closings
  • R31 Housing Supply and Markets