Abstract

This paper builds up a model for a rental housing market. With a search and matching friction in a rental housing market, a new house entry is endogenized according to a business cycle. A price negotiation happens only when owner and tenant newly match and make a contract for a rental price. After making a contract, a rental price is fixed until the contract ends. Simulations show that variations of a price and a market tightness change according to a search friction in a housing market, a speed of a housing cycle, a bargaining power between owner and tenant for a price setting. An extensive margin effect brought by a housing entry well contributes to a price variation and this effect significantly changes by parameters.  

Introduction

Former studies, such as Wheaton (1990), focus on a search behavior in a housing market and show advantage of a search model to explain a housing market.
Non-homeownership rates are at nontrivial level for a business cycle analysis across countries. In Japan, Statistics Bureau of Japan (2018) shows that a non-homeownership rate keep about 40 percent for many years. Australian Bureau of Statistics reports that the proportion of Australian households renting their home is 32 percent in 2017–18. In the U.S., the Census Bureau releases national non-homeownership rates and it is about 35 percent in the last few years. As well as buying and selling houses, a leasing house behavior can contribute to a business cycle.  

WP015

2020.02

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Abstract

This paper develops a price model with a product cycle. Through a frictional product market with search and matching frictions, an endogenous product cycle is accompanied with a price cycle where a price for a new good and a price for an existing good are set in a different manner. This model nests a New Keynesian Phillips curve with the Calvo's price adjustment as a special case and generates several new phenomena. Our simple model captures observed facts in Japanese product level data such as the pro-cyclicality among product entry, demand, and price. In a general equilibrium model, an endogenous product entry increases variation of the inflation rate by 20 percent in Japan. This number increases to 72 percent with a price discounting after a first price.

Introduction

"We have all visited several stores to check prices and/or to find the right item or the right size. Similarly, it can take time and effort for a worker to find a suitable job with suitable pay and for employers to receive and evaluate applications for job openings. Search theory explores the workings of markets once facts such as these are incorporated into the analysis. Adequate analysis of market frictions needs to consider how reactions to frictions change the overall economic environment: not only do frictions change incentives for buyers and sellers, but the responses to the changed incentives also alter the economic environment for all the participants in the market. Because of these feedback effects, seemingly small frictions can have large effects on outcomes."

Peter Diamond

WP009

2019.09

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Abstract

This paper develops a price model with a search foundation based on product cycles and prices. Observations conclude that firms match with a new product, then set a new price through negotiation and fix the price until the product exits from a market. This evident behavior results in a new model of price stickiness as a Search-based Phillips curve. The model includes a New Keynesian Phillips curve with Calvo’s price adjustment as a special case and describes new phenomena. First, new parameters and variables of a frictional goods market determine price dynamics. As separation rate in a goods market decreases, price becomes more sticky, i.e., a flatter slope in a Search-based Phillips curve, since the product turnover cycle is sluggish. Moreover, other goods market features, such as probability of match, elasticity of match, and bargaining power for a price setting decide price dynamics. Second, goods market friction can make endogenously persistent inflation dynamics without an assumption of indexation to a lagged inflation rate. Third, when the number of a product persistently increases, deflation continues for a long period. It can explain a secular deflation.

Introduction

“We have all visited several stores to check prices and/or to find the right item or the right size. Similarly, it can take time and effort for a worker to find a suitable job with suitable pay and for employers to receive and evaluate applications for job openings. Search theory explores the workings of markets once facts such as these are incorporated into the analysis. Adequate analysis of market frictions needs to consider how reactions to frictions change the overall economic environment: not only do frictions change incentives for buyers and sellers, but the responses to the changed incentives also alter the economic environment for all the participants in the market. Because of these feedback effects, seemingly small frictions can have large effects on outcomes.”

2018.02

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