The Housing Wealth Effect: a comparative study of Italy and the Netherlands
22 Pages Posted: 4 Jun 2021
Date Written: June 25, 2021
This paper tests whether disregarding home-improvements biases the housing wealth effect, the marginal propensity to consume out of housing wealth. The housing wealth effect is decomposed in its endogenous and exogenous component by filtering out previously stated expectations of house prices and accounting for endogenous home improvements.
Results of the empirical analysis show that the size of the bias is zero, due to the zero correlation between home-investments and changes in house values. Our results are consistent with a lifecycle model with exogenous home improvements. The use of a comparative empirical approach excludes that these are only internally valid.
Keywords: Housing wealth effect, Expectations, maintenance, renovations, home improvements
JEL Classification: G51
Suggested Citation: Suggested Citation