Of House and Home-Related Goods: The Home Purchase Channel of Expenditure

Giovanni Favara, James Graham and Geng Li

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Home-related spending in categories such as furnishings, renovations, and repairs is tied to housing market activity, with significant implications for aggregate expenditure dynamics. We refer to this relationship as the home purchase channel of expenditure. Using household-level panel data we estimate that home purchases lead to sizable increases in home-related spending, but not to increases in goods and services unrelated to home purchase. These findings are robust to the use of close-control groups and placebo tests. We then build a heterogeneous household model with housing, home renovations, and home-related durables that is calibrated to match our household-level evidence. Model simulations of housing market shocks generate large fluctuations in home-related and total expenditure. We show that the home purchase channel amplifies aggregate expenditure dynamics, with home-related spending accounting for around half of total spending fluctuations over the housing cycle.

Keywords: housing; home purchase; household spending; housing cycle (search for similar items in EconPapers)
JEL-codes: D12 D15 E21 E32 R31 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2025-06
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2025-32

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