Borrowing constraints and housing market liquidity

Essi Eerola, Niku Määttänen*

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

2 Citations (Scopus)
165 Downloads (Pure)

Abstract

We study how changes in household borrowing constraints influence housing market liquidity. To this end, we develop a housing market model with both matching and credit frictions. 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. In the model, housing market liquidity is very sensitive to changes in household credit conditions. In particular, a moderate tightening of household borrowing constraints increases the average time-on-the-market and idiosyncratic price dispersion substantially.

Original languageEnglish
Pages (from-to)184-204
JournalReview of Economic Dynamics
Volume27
DOIs
Publication statusPublished - Jan 2018
MoE publication typeA1 Journal article-refereed

Keywords

  • Borrowing constraint
  • Housing
  • Matching

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