Matching and credit frictions in the housing market

Essi Eerola and Niku Määttänen

No 20/2015, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: ​We study the interaction of matching and credit frictions in the housing market. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. We analyze how borrowing constraints influence house price determination in the presence of matching frictions. We also show that credit frictions greatly magnify the effects of matching frictions. For instance, in the presence of matching frictions, a moderate tightening of the borrowing constraint increases idiosyncratic price dispersion and the average time-on-the-market substantially.

JEL-codes: C78 E21 R21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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