The Housing Wealth Effect: a comparative study of Italy and the Netherlands

22 Pages Posted: 4 Jun 2021

See all articles by Francesco Caloia

Francesco Caloia

VU University Amsterdam

Mauro Mastrogiacomo

De Nederlansdche Bank (DNB); Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: June 25, 2021

Abstract


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

Caloia, Francesco and Mastrogiacomo, Mauro, The Housing Wealth Effect: a comparative study of Italy and the Netherlands (June 25, 2021). De Nederlandsche Bank Working Paper No. 713, Available at SSRN: https://ssrn.com/abstract=3859239 or http://dx.doi.org/10.2139/ssrn.3859239

Francesco Caloia (Contact Author)

VU University Amsterdam ( email )

Netherlands

Mauro Mastrogiacomo

De Nederlansdche Bank (DNB) ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31(0)20 444 6037 (Phone)
+31(0)20 444 6004 (Fax)

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