A Dynamic Model of Housing Demand: Estimation and Policy Implications

34 Pages Posted: 18 Apr 2013

See all articles by Patrick Bajari

Patrick Bajari

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Phoebe Chan

Wheaton College

Dirk Krueger

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Daniel Miller

Clemson University

Multiple version iconThere are 3 versions of this paper

Date Written: May 2013

Abstract

Using data from the PSID, we estimate a dynamic model of housing demand with nonconvex adjustment costs, credit constraints, and uncertainty about income and home prices. We simulate how consumer behavior responds to house price and income declines as well as tightening credit. In response to a negative home price shock, households early in the life cycle climb the housing ladder more quickly and invest more in housing assets due to the lower price. With a concurrent negative income shock, however, housing demand falls among young and middle aged households who stay in smaller homes rather than to trade up.

Suggested Citation

Bajari, Patrick and Chan, Phoebe and Krueger, Dirk and Miller, Daniel, A Dynamic Model of Housing Demand: Estimation and Policy Implications (May 2013). International Economic Review, Vol. 54, Issue 2, pp. 409-442, 2013, Available at SSRN: https://ssrn.com/abstract=2253131 or http://dx.doi.org/10.1111/iere.12001

Patrick Bajari (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

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HOME PAGE: http://www-personal.umich.edu/~bajari/

National Bureau of Economic Research (NBER)

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Phoebe Chan

Wheaton College ( email )

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Dirk Krueger

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
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Philadelphia, PA 19104-6297
United States
215-898-6691 (Phone)
215-573-2057 (Fax)

HOME PAGE: http://www.econ.upenn.edu/~dkrueger/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Daniel Miller

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

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