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Endogenous gentrification and housing price dynamics

Author

Listed:
  • Veronica Guerrieri
  • Daniel Hartley
  • Erik Hurst

Abstract

Using a unique dataset of interest rates offered by a large sample of U.S. banks on various retail deposit and loan products, we explore the rigidity of bank retail interest rates. We study periods over which retail interest rates remain fixed ("spells") and document a large degree of lumpiness of retail interest rate adjustments as well as substantial variation in the duration of these spells, both across and within different products. To explore the sources of this variation we apply duration analysis and calculate the probability that a bank will change a given deposit or loan rate under various conditions. Consistent with a nonconvex adjustment costs theory, we find that the probability of a bank changing its retail rate is initially increasing with time. Then as heterogeneity of the sample overwhelms this effect, the hazard rate decreases with time. The duration of the spells is significantly affected by the accumulated change in money market interest rates since the last retail rate change, the size of the bank and its geographical scope.

Suggested Citation

  • Veronica Guerrieri & Daniel Hartley & Erik Hurst, 2010. "Endogenous gentrification and housing price dynamics," Working Paper 1008, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1008
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    More about this item

    Keywords

    Housing - Prices ; Gentrification;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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