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A DYNAMIC MODEL OF HOUSING DEMAND: ESTIMATION AND POLICY IMPLICATIONS*
Article first published online: 17 APR 2013
© (2013) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 54, Issue 2, pages 409–442, May 2013
How to Cite
Bajari, P., Chan, P., Krueger, D. and Miller, D. (2013), A DYNAMIC MODEL OF HOUSING DEMAND: ESTIMATION AND POLICY IMPLICATIONS. International Economic Review, 54: 409–442. doi: 10.1111/iere.12001
Manuscript received October 2010; revised February 2012.
- Issue published online: 17 APR 2013
- Article first published online: 17 APR 2013
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.