PARTICIPANTS
Lee Ohanian, Manuel Amador, Nick Bloom, John Cogan, Paul Gregory, Pablo Kurlat, Ron McKinnon, John Raisian, Russ Roberts, Martin Schneider, Richard Sousa, John Taylor, Ian Wright
ISSUES DISCUSSED
Lee Ohanian, Professor of Economics at UCLA and Senior Fellow at Hoover Institution, discussed his work with Kyle Herkenhoff on foreclosure delay and unemployment in the United States.
Abstract of their work:
Through a purely positive lens, we study and document the growing trend of mortgagors who skip mortgage payments as an extra source of “informal” unemployment insurance during the 2007 recession and the subsequent recovery. In a dynamic model, we capture this behavior by treating both delinquency and foreclosure not as one period events, but rather as protracted and potentially reversible episodes that influence job search behavior and wage acceptance decisions. With a relatively conservative parameterization, we find that the observed foreclosure delays increase the unemployment rate by an additional one third of a percent to one half of a percent and increase the stock of delinquent loans by 8%-12%. When interpreted as an implicit line of credit, those that use their mortgage as “informal” unemployment insurance borrow at a real rate of at least 18%.
