Date Added: Oct 2010
The relationships among geographical mobility, unemployment and the value of owner-occupied housing are studied in an economy with heterogeneous locations, endogenous construction and search frictions in the markets for both labour and houses. Differences in labour market conditions between cities affect the speed with which houses may be sold-that is, the liquidity of housing. At the same time housing market conditions affect employment decisions and thus the allocation of labour across cities. A calibrated version of the economy is consistent with large differences in mobility between owners and renters between cities and with cross-city differences in rents and house prices. Home ownership has a significant effect on cross-city differences in unemployment, but affects aggregate unemployment only negligibly.