Nuno Paixão (Bank of Canada)
UNPACKING MOVING: A Quantitative Spatial Equilibrium Model with Wealth
Discussant: Nuno Paixão (Bank of Canada).
Abstract: This paper examines how household wealth—both liquid and illiquid—contributes to muted migration responses to local economic downturns. We introduce a novel housing-wealth lock-in mechanism: temporary declines in house prices following local shocks erode homeowners’ net worth, reducing their willingness to relocate. We formalize this channel in a quantitative dynamic spatial equilibrium model with uninsurable income risk, incomplete markets, and wealth accumulation in liquid assets and owner-occupied housing. The model generates precautionary migration motives stronger for households with limited wealth and financial insurance, producing heterogeneous migration elasticities even with homogeneous moving costs. We discipline the model using granular Canadian data and exploit oil-producing provinces’ exposure to the 2014–2018 global oil price collapse, which generated sharp, persistent declines in local incomes and house prices. Absent the house price decline, out-migration would have been nearly three times larger. While this wealth effect generates a lock-in analogous to a rent-based lock-in, distinguishing the two is crucial, as they have opposite welfare implications: rent declines lower housing expenditures for renters, mitigating losses by 52 percent, whereas house price declines reduce homeowners’ net worth, constrain relocation, and amplify welfare costs by 45 percent.
Chair: Gianmarco Ruzzier.
Location: Meeting room Chaflan 1.
Timetable: 2026.03.04 (12:00-13:00).