Trading Frictions and House Price Dynamics
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.
We would like to thank Humberto Ennis, Jonathan Heathcote, Haifang Huang, Ricardo Lagos, Francois Ortalo-Magne, Richard Peach, Gianluca Violante, and Pierre-Olivier Weill for helpful discussions and Peter Karadi for invaluable research assitance. We are grateful to the NSF for financial support under grant SES-0648545. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
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. citation courtesy of