On the dynamics of asset prices and liquidity: the role of search frictions and idiosyncratic shocks

Elton Dusha and Alexandre Janiak
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Elton Dusha: University of Chile

No 524, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We build a consumption asset pricing model with search frictions on the market for assets and idiosyncratic income shocks. Search is directed and a consumption-leisure decision drives the price-liquidity tradeoff: if consumption is marginally more desirable than leisure, a seller would be willing to wait longer for a higher price. Our model is consistent with two characteristics of the housing market, where search frictions are particularly important: i) procyclical liquidity (i.e. countercyclical time to sell) and ii) prices more sensitive to demand shocks.

Date: 2018
New Economics Papers: this item is included in nep-dge and nep-ure
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