Essays on housing and macroeconomics Open Access
Zhao, Tianhao (Summer 2025)
Abstract
The U.S. economy after the Great Recession shows a set of persistent and puzzling macroeconomic patterns, including a sharp and prolonged decline in aggregate consumption, a slow recovery in house prices and employment, and substantial regional variation in these economic outcomes. These facts have raised ongoing academic and policy debates about the underlying mechanisms driving the depth and persistence of the economic downturn, as well as the slow and uneven path to recovery. Existing studies highlight the role of financial frictions such as collateral constraints, and nominal rigidities, particularly downward nominal wage rigidity (DNWR). However, these two classes of frictions have often been studied in isolation. This dissertation proposes and systematically investigates a unified theory of friction interaction, which emphasizes how the simultaneous presence of financial and nominal frictions can jointly amplify the effects of aggregate shocks and delay recovery dynamics in a nonlinear and persistent manner.
The first chapter provides empirical support for this theory by estimating the heterogeneous effects of net worth shocks across the U.S. counties using a newly constructed dataset, CountyPlus, covering the period from 2003 to 2019. The analysis focuses on two key frictions: collateral constraints and DNWR. It uncovers substantial spatial heterogeneity in the response of consumption, unemployment, and housing outcomes to net worth shocks. Using a semi-varying coefficient model, this chapter identifies significant amplification and interaction effects in the transmission of shocks: counties facing both tighter collateral constraints and more binding downward wage rigidity experience deeper and more persistent downturns. These effects are understated by standard models. The empirical findings are rationalized by a tractable two-agent general equilibrium model, which demonstrates how the interaction of these frictions can endogenously produce the observed heterogeneity and persistence, especially through their impact on household deleveraging, consumption cuts, and labor market slack.
Building on this evidence, the second chapter develops a full-scale quantitative heterogeneous agent model to formally study the amplification effects of friction interaction. The model features households with liquid savings, illiquid housing wealth, fixed mortgage debt payment, and portfolio adjustment decisions, combined with collateral and DNWR constraints. The equilibrium is solved globally, and the model is calibrated to match key macroeconomic outcomes before the Great Recession. When subject to an adverse aggregate shock, the model reproduces the joint dynamics of the U.S. economy after the Great Recession, including the deep drop and slow recovery in consumption, employment, house prices etc. Comparative statistics demonstrate that the interaction of collateral constraint and DNWR generates the strongest and most persistent responses across all major macro variables. Removing either friction significantly weakens the amplification channel. A welfare analysis further quantifies the economic cost of each friction and their interaction, offering insights into targeted stabilization policies.
Together, these chapters provide a coherent and empirically grounded explanation for the uneven and prolonged recovery from the Great Recession. By highlighting the amplification effects arising from the interaction of financial and nominal frictions, this dissertation contributes to a deeper understanding of the transmission of aggregate shocks in frictional economies and informs the design of more effective macroeconomic stabilization policies.
Table of Contents
Contents
1. Frictions, Net Worth Shocks, and Heterogeneous Impacts
1.1 Introduction
1.2 A Simple Two-Agent Model
1.3 Data: CountyPlus
1.4 Estimating the Heterogeneous Effects
1.4.1 Linear LP with Independent Heterogeneous Effects
1.4.2 A Semi-Varying Coefficient Model
1.5 Conclusion
2. Downward Nominal Wage Rigidity and Collateral Constraints: A Theory for Post-Great Recession U.S. Economy
2.1 Introduction
2.2 Model
2.3 Computation Algorithm
2.4 Calibration
2.5 Quantitative Results
2.6 Conclusion
Appendix A. Chapter 1
A.1 Data Documentation
A.1.1 Measurement Error of Consumption
A.1.2 Supplementary Figures
A.2 Theory Model
A.2.1 Model System
A.2.2 Proof: Proposition 1.2.1
A.2.3 Proof: Proposition 1.2.2
A.2.4 A Friction-less Economy
A.2.5 Deterministic Steady State
A.2.6 Baseline Scenario for Illustration
A.3 Robustness Check: Degree Selection
A.4 Robustness Check: Profile Likelihood Ratio Test
A.5 Robustness Check: Sensitivity Analysis
A.6 Robustness Check: Spatial Spillover Effects
A.7 Robustness Check: Panel Unit Root Tests
Appendix B. Chapter 2
B.1 Numerical Algorithm: Household Problem
Bibliography
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