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Trading Frictions and House Price Dynamics

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  • ANDREW CAPLIN
  • JOHN LEAHY

Abstract

We construct a model of trade with matching frictions. The model provides a simple characterization for the joint proces of prices, sales and inventory. We compare the implications of the model to certain properties of housing markets. The model can generate the large price changes and the positive correlation between prices and sales that we see in the data. Unlike the data, prices are negatively autocorrelated and high inventory predicts price appreciation. We investigate several amendments to the model.

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File URL: http://hdl.handle.net/10.1111/j.1538-4616.2011.00436.x
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 43 (2011)
Issue (Month): (October)
Pages: 283-303

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Handle: RePEc:mcb:jmoncb:v:43:y:2011:i::p:283-303

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  5. Ortalo-Magné, François & Rady, Sven, 2005. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraint," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 50, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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  7. Fran�ois Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 459-485.
  8. James Albrecht & Axel Anderson & Eric Smith & Susan Vroman, 2007. "Opportunistic Matching In The Housing Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 641-664, 05.
  9. Prescott, Edward C, 1975. "Efficiency of the Natural Rate," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1229-36, December.
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  11. John R. Knight, 2002. "Listing Price, Time on Market, and Ultimate Selling Price: Causes and Effects of Listing Price Changes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(2), pages 213-237.
  12. Wheaton, William C, 1990. "Vacancy, Search, and Prices in a Housing Market Matching Model," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1270-92, December.
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Cited by:
  1. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2014. "Search, Liquidity, and the Dynamics of House Prices and Construction," American Economic Review, American Economic Association, vol. 104(4), pages 1172-1210, April.
  2. Gaetano Lisi, 2013. "Can the Montersen-Pissarides Model Match the Housing Market Facts?," Working Papers 1312, Department of Applied Economics II, Universidad de Valencia.
  3. Guillaume Rocheteau & Pierre-Olivier Weill, 2011. "Liquidity in frictional asset markets," Working Paper 1105, Federal Reserve Bank of Cleveland.
  4. Lisi, Gaetano, 2011. "Price dispersion in the housing market: the role of bargaining and search costs," MPRA Paper 33863, University Library of Munich, Germany.
  5. Gaetano Lisi, 2011. "The Hedonic Price Function in a Matching Model of Housing Market," Economics Bulletin, AccessEcon, vol. 31(3), pages 2347-2355.
  6. S. Boragan Aruoba & Morris A. Davis & Randall Wright, 2012. "Homework in Monetary Economics: Inflation, Home Production, and the Production of Homes," NBER Working Papers 18276, National Bureau of Economic Research, Inc.
  7. Lisi, Gaetano, 2012. "Home seekers in the housing market," MPRA Paper 37065, University Library of Munich, Germany.
  8. Genesove, David & Han, Lu, 2010. "Search and Matching in the Housing Market," CEPR Discussion Papers 7777, C.E.P.R. Discussion Papers.
  9. Elliot Anenberg & Patrick Bayer, 2013. "Endogenous Sources of Volatility in Housing Markets: The Joint Buyer-Seller Problem," NBER Working Papers 18980, National Bureau of Economic Research, Inc.
  10. Jonathan Halket & Matteo Pignatti, 2012. "Housing tenure choices with private information," Economics Discussion Papers 717, University of Essex, Department of Economics.
  11. Elliot Anenberg & Patrick Bayer, 2013. "Endogenous sources of volatility in housing markets: the joint buyer-seller problem," Finance and Economics Discussion Series 2013-60, Board of Governors of the Federal Reserve System (U.S.).

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