"Location Decisions and Welfare Inequality of Graduates from the Appalachian Region: the Role of Non-Pecuniary Considerations" (with Yifan Gong, Todd Stinebrickner, and Ralph Stinebrickner) , International Economic Review, 2025
Presented: UEA (2022)
"Location Decisions and Welfare Inequality of Graduates from the Appalachian Region: the Role of Non-Pecuniary Considerations" (with Yifan Gong, Todd Stinebrickner, and Ralph Stinebrickner) , International Economic Review, 2025
Presented: UEA (2022)
Novel survey questions are used to quantify the non-pecuniary benefits of the geographic locations and job types considered by college graduates from hometowns that often lack substantial high-skilled job opportunities. The questions, which were inspired by the concept of compensating wage differentials, allow us to measure the full amount of non-pecuniary benefits in dollar equivalents. We find that fully taking into account non-pecuniary considerations is of fundamental importance for understanding post-graduation location decisions and for characterizing inequality in overall welfare.
"Accounting for the Decline in Homeownership among the Young" , Contemporary Economic Policy, 2023
Presented: City University of Hong Kong (Virtual, 2020), Ohio State University PHD Conference on Real Estate and Housing (2018), CEA (2017)
This paper documents that the drop in young homeownership is more persistent among non-college graduates compared to college graduates: while some college graduates postpone home purchasing, non-college graduates are likely to remain long-term renters. I develop a model showing that the combination of rising college share and a widening education-driven income gap accounts for the delayed purchasing of college graduates and the lack of purchasing among non-college graduates. Exploiting cross-city variation, I verify the implications of the model and show that the mechanism can quantitatively account for the diverging ownership decisions between the two education groups from 1980 to 2019.
"Demographics and the Housing Market" (with Yifan Gong) , Regional Science and Urban Economics, 2022
Presented: Workshop at University of Nebraska-Lincoln (Virtual,2020), 34th Annual Conference of the European Society for Population Economics (Virtual, 2021)
What is the contribution of demographic changes to housing prices? We answer this question by analyzing various channels through which changes related to demographics may affect aggregate housing demand and supply differently. Specifically, we focus on the changes in life expectancy, international immigration, urbanization and fertility. As these changes are sustainable and predictable, understanding the role they play in the real estate markets is important for predicting future housing prices. We develop and estimate a general equilibrium model to evaluate the contribution of these factors and find that they can account for 42.5% of the observed housing price growth from 1970 to 2010. Adopting the projection of these four factors provided by Census and the United Nations, we use our model to predict housing price through 2050. We find that the housing price will keep growing from 2010 to 2050 by 7.4% to 21.3%, depending on urbanization rates and the level of immigration.
We study the efficiency of bilateral liability-based contracts in managed security services (MSSs). We model MSS as a collaborative service with the protection quality shaped by the contribution of both the service provider and the client. We adopt the negligence concept from the legal profession to design two novel contracts: threshold-based liability contract and variable liability contract. We find that they can achieve the first best outcome when post breach effort verification is feasible. More importantly, they are more efficient than a multilateral contract when the MSS provider assumes limited liability. Our results show that bilateral liability-based contracts can work in the real world. Hence, more research is needed to explore their properties. We discuss the related implications.
"Land and the Rise in the Dispersion of House Prices and Rents across U.S. Cities"
Presented: AREUEA-ASSA (2021), University of Southern California Rena Sivitanidou Research Symposium (2020), UEA (2019), Bank of Canada (2019), Canada Mortgage and Housing Corporation (2019, 2021), CEA (2019), ARES (2019)
Motivated by the fact that most owners live in detached houses while most renters live in apartments, I explore the role of land use difference between houses and apartments in determining the distribution of prices and rents across U.S. cities. Difference in land intensities leads to different supply elasticity between owner-occupied and rental units which are reflected in prices and rents. I show that introducing different land intensities in standard housing-tenure choice model allows it to account for the joint distribution of prices and rents across cities and its dynamics over time.
"Housing and the Long-term Real Effects of Changes in Trend Inflation" (with James MacGee)
previously titled "Trend Inflation Matters: The (very) Long Term Effects of Changes in Trend Inflation on Mortgage Debt"
Presented: CMSG(2024 by coauthor), CEBRA(2024), UEA (2024), Midwest Macro (2024, 2022), University of Nebraska-Omaha(2024), CEA(2024), AREUEA-ASSA (2024), Jinan University (2023)
Link to CEBRA
Fixed amortization mortgages lead to the level of inflation targeted having real effects on homeownership, consumption, and debt. Since higher trend inflation increases nominal interest rates, it increases nominal mortgage payments and payment-to-income ratios at origination, which crowds out nonhousing consumption by borrowing constrained homeowners. Using a lifecycle housing tenure choice model where trend inflation proportionately shifts nominal income growth and interest rates, we show that by front-loading real mortgage payments, higher inflation lowers steady state homeownership and mortgage debt-to-income (DTI). Following an unanticipated permanent change in trend inflation such as the 1980s Volcker disinflation, it can take 20 years for homeownership and DTI to reach the new steady state. While refinancing of Fixed Rate Mortgages (FRM) narrows the differences between FRM and Adjustable Rate Mortgages (ARM) economies following a fall in inflation, the mortgage lock-in effect leads to a longer transition following an increase in inflation with FRM than ARM. In our calibrated economy, the fall in inflation from around 8% in the early 1980s to under 3% by 2000 combined with lower mortgage financing cost can account for half of the rise in US mortgage debt between 1983 and 2001.
"Housing and the Welfare Cost of Inflation" (with James MacGee)
Presented: AREUEA-ASSA (Scheduled) UEA (2023), City Unviersity of Hong Kong (2023)
We quantify the welfare cost of inflation associated with borrowing constraints which distort housing choice and consumption over the life-cycle. In our incomplete-market life-cycle model, mortgages are restricted to take the form of standard fixed amortization contracts. We analyze steady states where variations in inflation see a corresponding change in nominal interest rates and nominal wage growth. With standard mortgage contracts, higher rates of inflation tilt the real level of mortgage payments to earlier in the contract. Intuitively, with fixed amortization and fixed nominal payments mortgage contracts, a decline in nominal interest rates decreases mortgage payments and alleviates debt payments to income constraints that are more likely to bind for younger homeowners. In addition, a lower growth rate of nominal income slows the decline in the debt to income ratio over a borrower's life. To quantify the welfare costs of inflation in this environment, we calibrate the model to match U.S. homeownership rates, loan-to-value ratios, and debt-to-income ratios over the life-cycle in 2019 and conduct counterfactual experiments to evaluate how variations in steady state inflation impact consumption and housing over the life-cycle and welfare. We find that even modest steady state inflation can have significant welfare costs.
A recurring question in the mortgage default literature is why underwater default is rare relative to model predictions. We find that one answer is miscalibration of flow payoffs. We build a novel, detailed quantitative model of mortgage default and find that realistic rent dynamics plus mild levels of default costs are sufficient to eliminate negative-equity strategic default. We present further empirical results supporting our model’s focus on flow payoffs. Our model addresses the underwater mortgage default puzzle, offers more realistic interpretations of policy consequences, and reinforces the theoretical effectiveness of cash-flow-based interventions.