Trading Frictions and House Price Dynamics

Andrew Caplin and John Leahy

Journal of Money, Credit and Banking, 2011, vol. 43, issue s2, 283-303

Abstract: We model liquidity in housing markets. The model provides a simple characterization for the joint process 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. Informational frictions show promise.

Date: 2011
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https://doi.org/10.1111/j.1538-4616.2011.00436.x

Related works:
Journal Article: Trading Frictions and House Price Dynamics (2011)
Working Paper: Trading Frictions and House Price Dynamics (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:43:y:2011:i:s2:p:283-303

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