Trading Frictions and House Price Dynamics
29 Pages Posted: 29 Dec 2008 Last revised: 30 May 2021
Date Written: December 2008
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.
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