Vincent Sterk

Home Equity, Mobility, and Macroeconomic Fluctuations

How does a fall in house prices affect real activity? This paper presents a business cycle model in which a decline in house prices reduces geographical mobility, creating distortions in the labor market. This happens because homeowners face declines in their home equity levels, after which it becomes more difficult to provide the down-payment required for a new mortgage loan. Unemployed homeowners therefore turn down job offers that would require them to move. The model explains joint cyclical patterns in housing and labor market aggregates, as well as the puzzling breakdown of the U.S. Beveridge curve that occurred during 2009.

The Nature of Firm Growth

There are vast differences in the growth patterns of firms: high-growth, young businesses, or “gazelles”, account for the vast majority of employment growth at incumbent firms. Using a large administrative panel data set for the United States, we provide evidence that ex-ante differences in the growth potential of firms account for most of the size heterogeneity across firms of a given age. First, we estimate a reduced-form employment process, allowing for heterogeneity in steady-state levels and deriving parameter identification from the autocovariance function of employment. Next, we estimate a general equilibrium firm dynamics model and explore the implications for firm selection and the macro effects of firm-level distortions.