Research Discussion Papers, Bank of Finland
No 20/2015:
Matching and credit frictions in the housing market
Essi Eerola ()
and Niku Määttänen ()
Abstract: We study the interaction of matching and credit frictions
in the housing market. In the model, risk-averse households may save or
borrow in order to smooth consumption over time and finance owner housing.
Prospective sellers and buyers meet randomly and bargain over the price. We
analyze how borrowing constraints influence house price determination in
the presence of matching frictions. We also show that credit frictions
greatly magnify the effects of matching frictions. For instance, in the
presence of matching frictions, a moderate tightening of the borrowing
constraint increases idiosyncratic price dispersion and the average
time-on-the-market substantially.
Keywords: housing; borrowing constraint; matching; (follow links to similar papers)
JEL-Codes: C78; E21; R21; (follow links to similar papers)
45 pages, October 5, 2015
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