Working Paper: NBER ID: w14605
Authors: Andrew Caplin; John Leahy
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.
Keywords: trading frictions; house price dynamics; housing markets
JEL Codes: D83; E3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market tightness (R31) | pricing (D49) |
| transaction volume (G15) | current prices (P22) |
| inventory (E22) | price changes (P22) |
| market tightness (R31) | surplus between buyers and sellers (D46) |
| high inventory (G31) | low prices (P22) |
| high inventory (G31) | expectations of future price increases (D84) |
| vacancies (J63) | price appreciation (G19) |