Trading Frictions and House Price Dynamics
AbstractWe 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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Date of creation: Dec 2008
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Other versions of this item:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-03 (All new papers)
- NEP-DGE-2009-01-03 (Dynamic General Equilibrium)
- NEP-MAC-2009-01-03 (Macroeconomics)
- NEP-URE-2009-01-03 (Urban & Real Estate Economics)
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