Borrowing constraints may prevent individual households from buying a home, but do they also reduce homeownership and expand the private rental sector? We develop an empirical strategy that accounts for equilibrium spillovers, based on an assignment model in which investors convert owner-occupied homes into rentals for credit-constrained households. This framework identifies both constrained households and those affected by investment spillovers, allowing quasi-experimental evidence to be interpreted as aggregate effects. Applying the method to Dutch mortgage policy tightenings from 2012 to 2016, we find that borrowing constraints significantly expanded the private rental sector, accounting for up to 75% of its growth through 2017. Our findings imply that borrowing constraints play a central role in shaping tenure outcomes and housing market composition.
We propose a theory of self-employment which, contrary to earlier studies, does not rely on ex-ante heterogeneity across agents. Households face a choice between self-employment and searching for a job at a firm. Both labor and product markets have search frictions. In the mixed strategy equilibrium, households trade the risk of not meeting a customer when self-employed against the risk of unemployment and the rent extraction in a guaranteed wage contract. The equilibrium is inefficient under risk-aversion due to excessive vacancy creation and self-insurance by self-employed, who attract too many customers by low prices. Type of employment dependent differentiated taxes and unemployment insurance benefits can restore efficiency under a balanced budget.
In most OECD countries, unemployment rates show no trend, which is puzzling if advancements in ICT decrease labour market frictions. We show, both analytically and quantitatively, that accounting for the secular decline in self-employment rates solves the puzzle. While declining labour market frictions can theoretically explain these trends, we provide contradictory causal evidence that the rollout of broadband Internet increased self-employment and decreased unemployment rates. We reconcile these observations with a new model featuring frictions in both labour and goods markets. We explain falling self-employment and non-trending unemployment quantitatively by labour market frictions declining relatively more than goods market frictions.
I present the macroeconomic effects of COVID-19 using the Keynesian cross. I show that the rest of the economy suffers from a lack of demand once one sector of the economy is shut down, and that the government spending and tax multipliers are smaller than usual. Fully insuring workers in the sector that is shut down cannot prevent a recession, but for the same aggregate transfers, such targeted income transfers do more to restore aggregate output than unconditional transfers. I extend the analysis to the IS-curve, and argue that a lockdown results in disinflation. These insights can be taught in an introductory or intermediate macroeconomics course.
Housing transactions by moving homeowners take two steps—buying a new house and selling the old one. This paper argues that the transaction sequence decisions of moving homeowners have important effects on the housing market. Moving homeowners prefer to buy first whenever there are more buyers than sellers in the market. However, this congests the buyer side of the market and increases the buyer–seller ratio, further strengthening the incentives of other moving owners to buy first. This endogenous strategic complementarity leads to multiple steady state equilibria and large fluctuations, which are broadly consistent with stylized facts about the housing cycle.
Summary in professional journal ESB (in Dutch):
Moen, E., P. Nenov, and F. Sniekers (2015). `Eerst kopen of eerst verkopen op de woningmarkt', Economisch Statistische Berichten, 100(4706), 169-199.
This paper explains the cyclical behavior of the fluctuations in unemployment and vacancies by demand externalities. Adding such externalities to an otherwise standard search and matching model reduces the need for exogenous shocks in explaining these fluctuations. Under plausible parameter values, the equilibrium dynamics include a stable limit cycle that resembles the empirically observed counterclockwise cycles around the Beveridge curve. Calibrated to the duration of the business cycle, these endogenous `Beveridge cycles' are as persistent as the data, without losing any of the amplification of the standard model.