Working Paper: NBER ID: w15878
Authors: Edward P. Lazear
Abstract: Inventories and price changes are correlated. The inverse relation is most obvious in housing where inventories build in low demand markets and shrink in high demand markets. This is a puzzle. Symmetry of information among buyers and sellers would seem to imply that sellers would change their reservation value by the amount that buyers change their offers. Because there is heterogeneity among buyers in the valuation of a given house, sellers set prices strategically. When demand falls, sellers rationally lower their prices, but not by enough to keep the probability of sale constant. As a result, inventories grow.
Keywords: No keywords provided
JEL Codes: D0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Demand for housing (decreases) (R21) | Seller price adjustments (insufficient) (L11) |
| Seller price adjustments (insufficient) (L11) | Inventory levels (increase) (D25) |
| Demand for housing (decreases) (R21) | Inventory levels (increase) (D25) |