How Auctions Amplify House-Price Fluctuations
No 714, 2016 Meeting Papers from Society for Economic Dynamics
I develop a tractable dynamic model of the housing market where the prices are determined in auctions rather than by Nash bargaining as in the standard housing search model. Markets that use auctions mimic actual housing markets, in that the model can portray a ``hot" market where numerous buyers flock to each new house on the market and a ``cold" market, where numerous houses are on the market and a buyer has a wide choice without competing directly with other buyers. In the auction model prices are higher, the inventory is bigger and waiting times are longer in the steady state compared to the standard model. The dynamic response of prices to shocks is larger in the auction model than in the bargaining model. Auctions amplify the response of house prices to shocks because prices respond more to changes in the present value of the housing services, and the option value to sell is more sensitive to the state of the housing market. The equilibrium allocations of the auction and Nash bargaining model are not socially efficient, so the government interventions are desirable.
New Economics Papers: this item is included in nep-dge, nep-sog and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:714
Access Statistics for this paper
More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Series data maintained by Christian Zimmermann ().