IDEAS home Printed from https://ideas.repec.org/p/ucr/wpaper/201911.html
   My bibliography  Save this paper

The Cyclical Behavior of the Beveridge Curve in the Housing Market

Author

Listed:
  • Miroslav Gabrovski

    (University of Hawaii Manoa)

  • Victor Ortego-Marti

    (Department of Economics, University of California Riverside)

Abstract

This paper develops a business cycle model of the housing market with search frictions and entry of both buyers and sellers. The housing market exhibits a well-established cyclical component, which features three stylized facts: prices move in the same direction as sales and the number of houses for sale, but opposite to the time it takes to sell a house. These stylized facts imply that in the data housing vacancies and the number of buyers are positively correlated, i.e. that the Beveridge Curve is upward sloping. A baseline search and matching model of the housing market is unable to match these stylized facts because it inherently generates a downward sloping Beveridge Curve. With free entry of both buyers and sellers, our model reproduces the positive correlation between prices, sales and vacancies, and matches the stylized facts qualitatively and quantitatively.

Suggested Citation

  • Miroslav Gabrovski & Victor Ortego-Marti, 2019. "The Cyclical Behavior of the Beveridge Curve in the Housing Market," Working Papers 201911, University of California at Riverside, Department of Economics.
    • Handle: RePEc:ucr:wpaper:201911
    as

    Download full text from publisher

    File URL: https://economics.ucr.edu/repec/ucr/wpaper/201911.pdf
    File Function: First version, 2019
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    2. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    3. Dale Mortensen & Eva Nagypal, 2007. "More on Unemployment and Vacancy Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(3), pages 327-347, July.
    4. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    5. Edward L. Glaeser & Joseph Gyourko, 2007. "Arbitrage in Housing Markets," NBER Working Papers 13704, National Bureau of Economic Research, Inc.
    6. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    7. Flinn, Christopher J & Heckman, James J, 1983. "Are Unemployment and Out of the Labor Force Behaviorally Distinct Labor Force States?," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 28-42, January.
    8. Karen Kopecky & Richard Suen, 2010. "Finite State Markov-chain Approximations to Highly Persistent Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 701-714, July.
    9. Michael Carney, 1982. "Costs and Pricing of Home Brokerage Services," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 10(3), pages 331-354, September.
    10. Arnott, Richard, 1989. "Housing Vacancies, Thin Markets, and Idiosyncratic Tastes," The Journal of Real Estate Finance and Economics, Springer, vol. 2(1), pages 5-30, February.
    11. repec:hal:spmain:info:hdl:2441/8921 is not listed on IDEAS
    12. Gabrovski, Miroslav & Ortego-Marti, Victor, 2021. "Search and credit frictions in the housing market," European Economic Review, Elsevier, vol. 134(C).
    13. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2016. "Understanding Booms and Busts in Housing Markets," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 1088-1147.
    14. Antonia Díaz & Belén Jerez, 2013. "House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 837-872, August.
    15. L. Rachel Ngai & Silvana Tenreyro, 2014. "Hot and Cold Seasons in the Housing Market," American Economic Review, American Economic Association, vol. 104(12), pages 3991-4026, December.
    16. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    17. Genesove, David & Han, Lu, 2012. "Search and matching in the housing market," Journal of Urban Economics, Elsevier, vol. 72(1), pages 31-45.
    18. 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 1270-1292, December.
    19. Andra Ghent, 2012. "Infrequent Housing Adjustment, Limited Participation, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 931-955, August.
    20. Robert E. Hall & Paul R. Milgrom, 2008. "The Limited Influence of Unemployment on the Wage Bargain," American Economic Review, American Economic Association, vol. 98(4), pages 1653-1674, September.
    21. Andrew Caplin & John Leahy, 2011. "Trading Frictions and House Price Dynamics," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 283-303, October.
    22. Miroslav Gabrovski & Victor Ortego-Marti, 2018. "Housing Market Dynamics with Search Frictions," Working Papers 201804, University of California at Riverside, Department of Economics.
    23. Masanori Kashiwagi, 2014. "Sunspots and Self-Fulfilling Beliefs in the U.S. Housing Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(4), pages 654-676, October.
    24. Stephen R. G. Jones & W. Craig Riddell, 2006. "Unemployment and Nonemployment: Heterogeneities in Labor Market States," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 314-323, May.
    25. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, vol. 87(3), pages 255-269, June.
    26. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Credit and Labor Markets Imperfections," SciencePo Working papers Main hal-01020132, HAL.
    27. Martin Schneider & Monika Piazzesi, 2009. "Momentum traders in a search model of the housing market," 2009 Meeting Papers 1266, Society for Economic Dynamics.
    28. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    29. Pietro Garibaldi & Etienne Wasmer, 2005. "Equilibrium Search Unemployment, Endogenous Participation, And Labor Market Flows," Journal of the European Economic Association, MIT Press, vol. 3(4), pages 851-882, June.
    30. Stephen R. G. Jones & W. Craig Riddell, 1999. "The Measurement of Unemployment: An Empirical Approach," Econometrica, Econometric Society, vol. 67(1), pages 147-162, January.
    31. Etienne Wasmer & Philippe Weil, 2004. "The Macroeconomics of Labor and Credit Market Imperfections," American Economic Review, American Economic Association, vol. 94(4), pages 944-963, September.
    32. Elliot Anenberg, 2016. "Information Frictions And Housing Market Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 1449-1479, November.
    33. Kashiwagi, Masanori, 2014. "A search-theoretic model of the rental and homeownership markets," Journal of Housing Economics, Elsevier, vol. 26(C), pages 33-47.
    34. Robert Novy‐Marx, 2009. "Hot and Cold Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(1), pages 1-22, March.
    35. Jeremy C. Stein, 1995. "Prices and Trading Volume in the Housing Market: A Model with Down-Payment Effects," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(2), pages 379-406.
    36. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
    37. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1233-1260.
    38. François Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 459-485.
    39. Eric Smith, 2020. "High and Low Activity Spells in Housing Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 1-28, April.
    40. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    41. Kevin Sheedy & Rachel Ngai, 2015. "The Ins and Outs of Selling Houses," 2015 Meeting Papers 214, Society for Economic Dynamics.
    42. Sirmans, C. F. & Turnbull, Geoffrey K., 1997. "Brokerage Pricing under Competition," Journal of Urban Economics, Elsevier, vol. 41(1), pages 102-117, January.
    43. Monika Piazzesi & Martin Schneider, 2009. "Momentum Traders in the Housing Market: Survey Evidence and a Search Model," American Economic Review, American Economic Association, vol. 99(2), pages 406-411, May.
    44. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1567-1606.
    45. Chang-Tai Hsieh & Enrico Moretti, 2003. "Can Free Entry Be Inefficient? Fixed Commissions and Social Waste in the Real Estate Industry," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 1076-1122, October.
    46. Robert Shimer, 2005. "The Cyclical Behavior of Equilibrium Unemployment and Vacancies," American Economic Review, American Economic Association, vol. 95(1), pages 25-49, March.
    47. Krainer, John, 2001. "A Theory of Liquidity in Residential Real Estate Markets," Journal of Urban Economics, Elsevier, vol. 49(1), pages 32-53, January.
    48. Bachmann, Rüdiger & Cooper, Daniel, 2014. "The Ins and Arounds in the U.S. Housing Market," CEPR Discussion Papers 10041, C.E.P.R. Discussion Papers.
    49. Panle Jia Barwick & Parag A. Pathak & Maisy Wong, 2017. "Conflicts of Interest and Steering in Residential Brokerage," American Economic Journal: Applied Economics, American Economic Association, vol. 9(3), pages 191-222, July.
    50. repec:hal:wpspec:info:hdl:2441/8921 is not listed on IDEAS
    51. James R. Frew & G. Donald Jud & Willard McIntosh, 1993. "A Note on Agency Size and Brokerage Commission Splits," Journal of Real Estate Research, American Real Estate Society, vol. 8(2), pages 287-291.
    52. Robert E. Hall, 1970. "Why Is the Unemployment Rate So High at Full Employment?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 369-410.
    53. 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.
    54. Guillaume Rocheteau & Randall Wright & Cathy Zhang, 2018. "Corporate Finance and Monetary Policy," American Economic Review, American Economic Association, vol. 108(4-5), pages 1147-1186, April.
    55. Joachim Zietz & Bobby Newsome, 2001. "A Note on Buyer's Agent Commision and Sales Price," Journal of Real Estate Research, American Real Estate Society, vol. 21(3), pages 245-254.
    56. William C. Goolsby & Barbara J. Childs, 1988. "Brokerage Firm Competition in Real Estate Commission Rates," Journal of Real Estate Research, American Real Estate Society, vol. 3(2), pages 79-85.
    57. John Krainer, 2008. "Falling house prices and rising time on the market," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar21.
    58. Allen Head & Huw Lloyd-Ellis & Hongfei Sun, 2016. "Search, Liquidity, and the Dynamics of House Prices and Construction: Corrigendum," American Economic Review, American Economic Association, vol. 106(4), pages 1214-1219, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Cyclical Behavior of the Beveridge Curve in the Housing Market
      by Christian Zimmermann in NEP-DGE blog on 2019-11-05 21:08:01

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ngai, Liwa Rachel & Sheedy, Kevin, 2020. "The Ins and Outs of Selling Houses: Understanding Housing Market Volatility," CEPR Discussion Papers 14331, C.E.P.R. Discussion Papers.
    2. Gabrovski, Miroslav & Kospentaris, Ioannis, 2021. "Intermediation in over-the-counter markets with price transparency," Journal of Economic Theory, Elsevier, vol. 198(C).
    3. Miroslav Gabrovski & Victor Ortego-Marti, 2022. "Home Construction Financing and Search Frictions in the Housing Market," Working Papers 202217, University of California at Riverside, Department of Economics.
    4. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "On the Slope of the Beveridge Curve in the Housing Market," Working Papers 202105, University of Hawaii at Manoa, Department of Economics.
    5. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "Efficiency in the Housing Market with Search Frictions," Working Papers 202108, University of California at Riverside, Department of Economics.
    6. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "On the Positive Slope of the Beveridge Curve in the Housing Market," Working Papers 202113, University of California at Riverside, Department of Economics.
    7. Gabrovski, Miroslav & Ortego-Marti, Victor, 2021. "Search and credit frictions in the housing market," European Economic Review, Elsevier, vol. 134(C).
    8. Elliot Anenberg & Daniel R. Ringo, 2022. "Volatility in Home Sales and Prices: Supply or Demand?," Finance and Economics Discussion Series 2022-041, Board of Governors of the Federal Reserve System (U.S.).
    9. Lukasz Mach & Dariusz Zmarzly & Ireneusz Dabrowski & Pawel Fracz, 2020. "Comparison on Subannual Seasonality of Building Construction in European Countries," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 241-257.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabrovski, Miroslav & Ortego-Marti, Victor, 2021. "Search and credit frictions in the housing market," European Economic Review, Elsevier, vol. 134(C).
    2. Miroslav Gabrovski & Victor Ortego-Marti, 2018. "Housing Market Dynamics with Search Frictions," Working Papers 201804, University of California at Riverside, Department of Economics.
    3. Miroslav Gabrovski & Victor Ortego-Marti, 2022. "Home Construction Financing and Search Frictions in the Housing Market," Working Papers 202217, University of California at Riverside, Department of Economics.
    4. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "Efficiency in the Housing Market with Search Frictions," Working Papers 202108, University of California at Riverside, Department of Economics.
    5. Han, Lu & Strange, William C., 2015. "The Microstructure of Housing Markets," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 813-886, Elsevier.
    6. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "On the Positive Slope of the Beveridge Curve in the Housing Market," Working Papers 202113, University of California at Riverside, Department of Economics.
    7. Miroslav Gabrovski & Victor Ortego-Marti, 2021. "On the Slope of the Beveridge Curve in the Housing Market," Working Papers 202105, University of Hawaii at Manoa, Department of Economics.
    8. Elliot Anenberg & Patrick Bayer, 2020. "Endogenous Sources Of Volatility In Housing Markets: The Joint Buyer–Seller Problem," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1195-1228, August.
    9. Kashiwagi, Masanori, 2014. "A search-theoretic model of the rental and homeownership markets," Journal of Housing Economics, Elsevier, vol. 26(C), pages 33-47.
    10. Antonia Díaz & Belén Jerez, 2013. "House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54(3), pages 837-872, August.
    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.).
    12. Charles Ka Yui Leung & Joe Cho Yiu Ng, 2018. "Macro Aspects of Housing," GRU Working Paper Series GRU_2018_016, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    13. Ngai, Liwa Rachel & Sheedy, Kevin, 2020. "The Ins and Outs of Selling Houses: Understanding Housing Market Volatility," CEPR Discussion Papers 14331, C.E.P.R. Discussion Papers.
    14. Gan, Li & Wang, Pengfei & Zhang, Qinghua, 2018. "Market thickness and the impact of unemployment on housing market outcomes," Journal of Monetary Economics, Elsevier, vol. 98(C), pages 27-49.
    15. Espen R Moen & Plamen T Nenov & Florian Sniekers, 2021. "Buying First or Selling First in Housing Markets," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 38-81.
    16. Eric Smith, 2020. "High and Low Activity Spells in Housing Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 1-28, April.
    17. Alina Arefeva, 2016. "How Auctions Amplify House-Price Fluctuations," 2016 Meeting Papers 714, Society for Economic Dynamics.
    18. Daisy J. Huang & Charles Ka Yui Leung & Chung-Yi Tse, 2018. "What Accounts for the Differences in Rent-Price Ratio and Turnover Rate? A Search-and-Matching Approach," The Journal of Real Estate Finance and Economics, Springer, vol. 57(3), pages 431-475, October.
    19. DeFusco, Anthony A. & Nathanson, Charles G. & Zwick, Eric, 2022. "Speculative dynamics of prices and volume," Journal of Financial Economics, Elsevier, vol. 146(1), pages 205-229.
    20. Michele Cascarano & Filippo Natoli, 2023. "Temperatures and search: evidence from the housing market," Temi di discussione (Economic working papers) 1419, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucr:wpaper:201911. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kelvin Mac (email available below). General contact details of provider: https://edirc.repec.org/data/deucrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.