House Prices, Local Demand, and Retail Prices

We document a causal response of local retail prices to changes in local house prices, with elasticities of 15–20 percent across housing cycles. These price responses are largest in zip codes with many homeowners and are driven by changes in markups rather than local costs. We argue that markups ris...

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Veröffentlicht in:	The Journal of political economy 2019-06, Vol.127 (3), p.1391-1436
Hauptverfasser:	Stroebel, Johannes, Vavra, Joseph
Format:	Artikel
Sprache:	eng
Schlagworte:	Business cycles Change agents Economic models Economic theory Elasticity Housing Housing prices Political economy Prices Pricing policies Shopping Wealth
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creator	Stroebel, Johannes Vavra, Joseph
description	We document a causal response of local retail prices to changes in local house prices, with elasticities of 15–20 percent across housing cycles. These price responses are largest in zip codes with many homeowners and are driven by changes in markups rather than local costs. We argue that markups rise with house prices because greater housing wealth reduces homeowners’ demand elasticity, and firms raise markups in response. Shopping data confirm that house price changes affect the price sensitivity of homeowners, but not that of renters. Our evidence suggests a new source of business cycle markup variation.
doi_str_mv	10.1086/701422
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source	EBSCOhost Business Source Complete; University of Chicago Press Journals (Full run)
subjects	Business cycles Change agents Economic models Economic theory Elasticity Housing Housing prices Political economy Prices Pricing policies Shopping Wealth
title	House Prices, Local Demand, and Retail Prices
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