Full Citation

Title: Liquidity Constraints and Durable Good Prices: Theory and Evidence from the Housing Market

Citation Type: Working Paper

Publication Year: 2003

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Abstract: This paper employs a simple intertemporal model and simulation to show that presence of liquidity constraints can depress the price of a durable good below its net present rental value. The existence of price effects implies that the relaxation of liquidity constraints is not Pareto improving. Historical evidence from the housing market, which exploits the fact that a clearly identifiable group, war veterans, enjoyed the greatest access to mortgage credit in the postwar era, supports the model. The results suggest that more recent mortgage market innovations have served primarily to increase prices, rather than increase home ownership rates. (JEL D91; E21; G21; R21)

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Authors: Vigdor, Jacob L.

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Publication Number: 10611

Institution: National Bureau of Economic Research

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Publisher Location: Cambridge, MA

Data Collections: IPUMS USA

Topics: Housing and Segregation, Other

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