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

Francesco Caloia and Mauro Mastrogiacomo

Working Papers from DNB

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 (search for similar items in EconPapers)
JEL-codes: G51 (search for similar items in EconPapers)
Date: 2021-05
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:713

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