Economics Seminar（2015-23）

Topic: Inequality and house prices
Speaker: Fudong Zhang, University of Michigan
Time: Monday, January.18 from 2:00-3:30pm
Location: Room 217, Guanghua Building 2

Abstract:
This paper studies the interaction between inequality and house prices using an incomplete market model with heterogeneous households. The model links cross-sectional household portfolio saving decisions to housing market outcomes, and it can account for the positive empirical relationship between growth in inequality and changes in house prices. It also illustrates a new house price formation mechanism in which an investment motive among the wealthy plays a key role. A quantitative application of the theory rationalizes the recent substantial housing boom accompanied by rising household saving rates in China. The theory in this paper shows that market frictions can have a differential impact cross-sectionally, increasing inequality. Inequality can in turn amplify frictions in the market.