Spiegler, Ran
(2016)
Can agents with causal misperceptions be systematically fooled?
CFM discussion paper series (CFM-DP2016-19).
Centre For Macroeconomics, London, UK.
Abstract
Using data on house sales and inventories, this paper shows that housing-market dynamics are driven mainly by listings and less so by transaction speed, thus the decision to move house is key to understanding the housing market. The paper builds a model where moving house is essentially an investment in match quality, implying that moving depends on macroeconomic developments and housing-market conditions. The endogeneity of moving means there is a cleansing effect — those at the bottom of the match quality distribution move first — which generates overshooting in aggregate variables. The model is applied to the 1995–2004 housingmarket boom.
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