Trading Frictions and House Price Dynamics

29 Pages Posted: 29 Dec 2008 Last revised: 28 Jan 2009

See all articles by Andrew Caplin

Andrew Caplin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

John V. Leahy

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: December 2008

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.

Suggested Citation

Caplin, Andrew and Leahy, John V., Trading Frictions and House Price Dynamics (December 2008). NBER Working Paper No. w14605. Available at SSRN: https://ssrn.com/abstract=1320851

Andrew Caplin (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-8950 (Phone)
212-995-3932 (Fax)

HOME PAGE: http://www.econ.nyu.edu/user/caplina/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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John V. Leahy

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States
212-992-9770 (Phone)
212-995-4186 (Fax)

HOME PAGE: http://www.nyu.edu/fas/Faculty/LeahyJohn.html

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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