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Borrowing constraints and housing market liquidity

Essi Eerola and Niku Määttänen ()

Review of Economic Dynamics, 2018, vol. 27, 184-204

Abstract: We study how changes in household borrowing constraints influence housing market liquidity. To this end, we develop a housing market model with both matching and credit frictions. 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. In the model, housing market liquidity is very sensitive to changes in household credit conditions. In particular, a moderate tightening of household borrowing constraints increases the average time-on-the-market and idiosyncratic price dispersion substantially. (Copyright: Elsevier)

Keywords: Housing; Borrowing constraint; Matching (search for similar items in EconPapers)
JEL-codes: E21 R21 C78 (search for similar items in EconPapers)
Date: 2018
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