We would like to thank Humberto Ennis, Jonathan Heathcote, Haifang Huang, Ricardo Lagos, François Ortalo-Magné, Richard Peach, Robert Shimer, Gianluca Violante, and Pierre-Olivier Weill for helpful discussions and Peter Karadi for invaluable research assitance. This reseasrch was supported by the National Science Foundation under grant no. SES-0648545.
Trading Frictions and House Price Dynamics
Article first published online: 23 SEP 2011
© 2011 The Ohio State University
Journal of Money, Credit and Banking
Volume 43, Issue Supplement s2, pages 283–303, October 2011
How to Cite
CAPLIN, A. and LEAHY, J. (2011), Trading Frictions and House Price Dynamics. Journal of Money, Credit and Banking, 43: 283–303. doi: 10.1111/j.1538-4616.2011.00436.x
- Issue published online: 23 SEP 2011
- Article first published online: 23 SEP 2011
- Received December 10, 2008; and accepted in revised form March 5, 2010.
- house prices;
- trading volume;
- trading frictions
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.