Behavioral lock-in: aggregate implications of reference dependence in the housing market

Cristian Badarinza (cristian.badarinza@nus.edu.sg), Tarun Ramadorai, Juhana Siljander (j.siljander@imperial.ac.uk) and Jagdish Tripathy (jagdish.tripathy@bankofengland.co.uk)
Additional contact information
Cristian Badarinza: National University of Singapore
Juhana Siljander: Imperial College Business School
Jagdish Tripathy: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 1054, Bank of England working papers from Bank of England

Abstract: We study the aggregate implications of reference dependent and loss averse preferences in the housing market. Motivated by micro evidence, we embed optimizing homeowners with these preferences into a dynamic search and matching equilibrium model with rich heterogeneity and realistic constraints. We assess the model using large and granular administrative data tracking buyers and sellers in the UK housing market; the predictions match regional and time variation in price growth and transaction volumes. The model shows that behavioral frictions in a decentralized market can link nominal quantities with real outcomes; and reveals that the distribution of potential nominal gains in the housing market is a key policy-relevant statistic.

Keywords: Reference dependence; behavioral frictions; housing (search for similar items in EconPapers)
JEL-codes: D12 D91 G51 R21 R31 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2024-01-12
New Economics Papers: this item is included in nep-dge, nep-sea, nep-upt and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Behavioral Lock-In: Aggregate Implications of Reference Dependence in the Housing Market (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1054

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