High and Low Activity Spells in Housing and Labor Markets

Eric Smith

No 943, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: This paper demonstrates the way in which episodes of hot and cold trading activity can occur in a stock-flow matching market. A market experiences high entry and turnover when potential sellers enter the market knowing that buyers went unsatisfied in the previous trading opportunity. Provided sellers can enter faster than buyers do, eventually seller entry will run down the stock of buyers until it is no longer profitable for sellers to join the market. At this point the market becomes fallow and turnover is low. During this fallow period, buyer entry occurs unobserved to replenish the stock of potential buyers. Eventually the potential stock is sufficiently high to induce seller entry and the process repeats.

Date: 2010
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