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House price dynamics with dispersed information

  • Favara, Giovanni
  • Song, Zheng

We use a user-cost model to study how dispersed information affects the equilibrium house price. In the model, agents are disparately informed about local economic conditions, consume housing services, and speculate on price changes. Optimists, who expect high house price growth, buy in anticipation of capital gains; pessimists, who expect capital losses, prefer to rent. Because of short-selling constraints on housing, pessimistic expectations are not incorporated in the price of owned houses and the equilibrium price is higher and more volatile relative to the benchmark case of common information. We present evidence supporting the modelʼs predictions in a panel of US cities.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 149 (2014)
Issue (Month): C ()
Pages: 350-382

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Handle: RePEc:eee:jetheo:v:149:y:2014:i:c:p:350-382
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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