Effect of Trading Frictions on the House Price (Chapter 3)

Starting from the model developed in Chapter 2, this chapter shows the quantitative effect of search and matching frictions on the house prices estimate. After identifying a frictionless housing market and using two items of housing market data (namely, the expected time-on-the-market, and the average number of trades), the chapter estimates the matching opportunities for both buyers and sellers that, in turn, crucially affect the housing prices. Eventually, a comparison of house prices between a frictionless housing market and a market with
trading frictions is made.