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A DYNAMIC MODEL OF HOUSING DEMAND: ESTIMATION AND POLICY IMPLICATIONS *
Author(s) -
Bajari Patrick,
Chan Phoebe,
Krueger Dirk,
Miller Daniel
Publication year - 2013
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12001
Subject(s) - economics , shock (circulatory) , demand shock , estimation , panel study of income dynamics , climb , microeconomics , econometrics , labour economics , management , medicine , engineering , aerospace engineering
Using data from the PSID, we estimate a dynamic model of housing demand with nonconvex adjustment costs, credit constraints, and uncertainty about income and home prices. We simulate how consumer behavior responds to house price and income declines as well as tightening credit. In response to a negative home price shock, households early in the life cycle climb the housing ladder more quickly and invest more in housing assets due to the lower price. With a concurrent negative income shock, however, housing demand falls among young and middle aged households who stay in smaller homes rather than to trade up.