Unemployment Insurance as a Housing Market Stabilizer†

Unemployment Insurance as a Housing Market Stabilizer† AbstractThis 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. (JEL D14, E32, G21, J65, R31) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Unemployment Insurance as a Housing Market Stabilizer†

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20140989
Publisher site
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Abstract

AbstractThis 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. (JEL D14, E32, G21, J65, R31)

Journal

American Economic ReviewAmerican Economic Association

Published: Jan 1, 2018

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