Investors were ‘fooled by search’ in US housing, says Bank of Canada paper


The presence of trading frictions, also known as search frictions, in the US housing market contributed to more than 70% of the increase in house prices relative to trend during the boom years of 1995 to 2006, according to a Bank of Canada paper published on February 9.

Brian Peterson, the paper's author, used a standard ordinary least squares regression to explain the behaviour of house prices in the US during that time. He found that search frictions affect asset prices, so that asset markets

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