Modeling House Prices

Yu Zhu, Randall Wright and Damien Gaumont

No 744, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: This paper develops some novel models of housing markets based on price posting, using both noisy search and directed search. The models generate price dispersion and price stickiness -- i.e., they are consistent with the observation that some sellers do not adjust listed prices when market conditions change, something commentators say is puzzling and challenging for standard economic theory. We also contribute to the literature on price dispersion, in general, by considering big-ticket durable goods and agents that trade infrequently. The framework is tractable: comparative statics are characterized and parametric examples are solved explicitly. Using English housing data, we show the empirical relevance of the directed search model. This contributes to the literature of directed-search by showing how to identify and estimate a directed-search model.

Date: 2017
New Economics Papers: this item is included in nep-dge and nep-ure
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