Dynamic Model for the Simulation of Equilibrium St

Authors: Francisco Martínez Ricardo Hurtubia

Publish Date: 2006/05/19

Volume: 6, Issue: 1, Pages: 55-73

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Abstract

This paper presents a dynamic equilibrium model for the real estate market Households have stochastic behavior and compete for quasiunique locations real estate goods which are assigned to the best bidder through an auctiontype mechanism The producers are modeled as maximizers of their profits over the longterm through the production of real estate assets represented by the present value of future sales It is assumed that the producers do not possess complete information about future levels of demand or prices Rather it is assumed that producers are myopic meaning that they take the actual and historic prices in each period as the relevant information for their decisionmaking A notion of equilibrium is used that adjusts prices given two situations supply and demand surplus In the supply surplus case the prices are diminished and supply in the market is reduced until supply equals demand In the case of demand surplus the prices rise and demand diminishes homeless households until demand equals supply This equilibrium condition yields prices that are jumpy over time resembling observations of inventories in the real estate market and the manufacture industry

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