Working Papers

2013-22 | March 2016


Land Prices and Unemployment


We integrate the housing market and the labor market in a dynamic general equilibrium model with credit and search frictions. We argue that the labor channel, combined with the standard credit channel, provides a strong transmission mechanism that can deliver a potential solution to the Shimer (2005) puzzle. The model is confronted with U.S. macroeconomic time series. The estimation results account for two prominent facts observed in the data. First, land prices and unemployment move in opposite directions over the business cycle. Second, a shock that moves land prices also generates the observed large volatility of unemployment.

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Article Citation

Liu, Zheng, Jianjun Miao, and Tao Zha. 2013. "Land Prices and Unemployment," Federal Reserve Bank of San Francisco Working Paper 2013-22. Available at