Working Paper: NBER ID: w19564
Authors: Li Gan; Qinghua Zhang
Abstract: This paper develops a search-matching model to study the impact of the unemployment rate on the housing market in the presence of the thick market effect. We estimate the structural model using Texas city-level data that covers three years, 1990, 2000 and 2010. Our structural estimation helps identify the channel through which the thick market effect amplifies the impact of the unemployment rate on housing market outcomes. Specifically, we show that an increase in the unemployment generates a thinner market, which leads to poorer matching quality on average. As a consequence, prices and the transaction volume both decline more than in the absence of the thick market effect. Simulations based on our estimates predict that a three percentage-point increase in the unemployment rate lowers the price by 7.74% and reduces the transaction volume by 9.98%. In addition, larger cities with more population experience milder changes in prices in response to changes in the unemployment rate compared to smaller cities.
Keywords: Housing Market; Unemployment; Thick Market Effect; Search-Matching Model
JEL Codes: L1; R2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment Rate (J64) | Thinner Housing Market (R31) |
| Thinner Housing Market (R31) | Poorer Matching Quality (L15) |
| Unemployment Rate (J64) | Poorer Matching Quality (C78) |
| Unemployment Rate (J64) | Average Housing Price (R31) |
| Unemployment Rate (J64) | Transaction Volume (Y10) |
| Unemployment Rate (J64) | Housing Market Dynamics (R31) |
| Unemployment Rate (J64) | Price Elasticity (D11) |
| Unemployment Rate (J64) | Sales Volume Elasticity (D12) |
| Thick Market Effect (D49) | Housing Market Outcomes (R31) |