A Structural Model of a Housing Market with Friction

Abstract

This paper presents a structural model of nine equations that connect the unobserved housing service and the observed house transaction markets. Endogenous variables include two prices, supply, demand, stock of houses for sale on the market, average time on the market, stock of all houses, total vacant houses, and average house size. The search process of households for houses generates a stochastic process which results in an uncleared stock of houses on the market. The friction cost is specifically measured. The model should improve many practices in housing market research, and may be extended to other durable goods markets and beyond.
 

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Keywords

Housing Market, Structural Model, Equilibrium, Uncleared Stock, Friction

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