Trading Frictions and House Price Dynamics |
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| Authors: | ANDREW CAPLIN JOHN LEAHY |
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| Institution: | 1. Andrew Caplin is a Professor in Department of Economics, New York University and NBER (E‐mail: andrew.caplin@nyu.edu).;2. John Leahy is a Professor in Department of Economics, New York University and NBER (E‐mail: john.leahy@nyu.edu). |
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| Abstract: | We model liquidity in housing markets. The model provides a simple characterization for the joint process 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. Informational frictions show promise. |
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| Keywords: | D53 L11 R31 house prices liquidity trading volume trading frictions |
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