Search and Matching Models of Housing and Macroeconomic Activity.

This dissertation presents three papers on the macroeconomics of the housing market. Motivated by the fact that U.S. housing data are characterized by highly persistent and non-zero vacancies in both short run and long run, I develop dynamic search and matching models of the housing market with flexible prices, that produce coincidental steady state equilibrium vacancies and prices. The structural models developed in this dissertation analyze the impact of macroeconomic shocks on demand and on flow and stock supply of housing under differing assumptions about demand. The basic model with homogeneous demand is successful in generating highly persistent fluctuations in ownership vacancies at business cycle frequencies. For certain shocks it can also reproduce the negative correlation between flow investment and vacancies observed in the data. In the second paper I apply the model to quantitatively analyze the impact of Hurricane Katrina on the housing market in affected cities. I also present an empirical analysis using the hurricane’s impact on local housing markets as a natural experiment. I posit that exogenous variation in housing stock due to the hurricane causes the demand curve for housing to shift out in affected cities. This yields an estimate of the elasticity of flow supply in housing. Model simulations successfully predict a rise in prices for disaster areas even though it overshoots in magnitude compared to actual data. The model also correctly predicts that residential investment increases after the hurricane and tracks actual data closely in magnitude. In the final paper I present the matching model modified to include heterogeneous demand. Introducing heterogeneity provides the insight that sellers trade off vacancy duration and fit with buyer against price after a negative demand shock, thereby reducing prices less than they would be forced to in a Walrasian setting. I use this model to analyze the home buyer tax credit from the U.S. government in 2008-2010. I find that the credit raises total sales to include lower fit values that previously yielded a price with negative match surplus. The paper verifies that the policy is successful in reducing unsold vacancies while boosting average price above steady state.Ph.D.EconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/91376/1/saaqeel_1.pd