The COVID-19 pandemic induced a significant increase in both the amount of time that households spend at home and the share of expenditures allocated to at-home consumption. These changes coincided with a period of rapidly rising house prices. We interpret these facts as the result of stay-at-home shocks that increase demand for goods consumed at home as well as the homes that those goods are consumed in. We first test the hypothesis empirically using US cross-county panel data and instrumental variables regressions. We find that counties where households spent more time at home experienced faster increases in house prices. We then study various pandemic shocks using a heterogeneous agent model with general equilibrium in housing markets. Stay-at-home shocks explain around half of the increase in model house prices in 2020, with lower mortgage interest rates explaining around one third, and unemployment shocks and fiscal stimulus accounting for the remainder. We find that young households and first-time home buyers account for much of the increase in underlying housing demand during the pandemic, but they are largely crowded out of the housing market by the equilibrium rise in house prices.

SSRN Version

In this paper, I evaluate the role of fluctuations in business formation in amplifying business cycles. To do this, I study the response of aggregate employment to shocks in a general equilibrium model of producer dynamics with entry and exit. In the model, producers’ markups rise with their size, so that, in response to a decline in entry, incumbents’ market shares rise and they increase their markups and reduce employment. I find that entry fluctuations lead to economically meaningful amplification of business cycle shocks in the model.

(FEDS version: Entry, Variable Markups, and Business Cycles)