Trading Frictions and House Price Dynamics

Andrew Caplin () and John Leahy ()

No 14605, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D83 E3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-ure
Date: 2008-12
Note: EFG ME
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