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Housing and household consumption: An investigation of the wealth and collateral effects

Eduard Suari-Andreu

Journal of Housing Economics, 2021, vol. 54, issue C

Abstract: The macroeconomic literature has identified a robust relationship between house prices and consumption at the aggregate level. The microeconomic literature points to three possible mechanisms behind this relationship: the wealth effect, whereby households respond to changes in housing wealth by spending/saving more; the collateral effect whereby households use the main residence as collateral for consumer loans; and the common causality effect whereby one or more variables affect both house prices and consumption simultaneously. I test the implications of these mechanisms using data from a panel survey representative of the Dutch population. For that purpose, I employ measures of subjective house prices and subjective house price expectations. Results suggest that the wealth and the collateral effects play, at best, minor roles in explaining the aggregate relationship between house prices and consumption.

Keywords: Housing; Saving; Consumption; House prices; Subjective expectations (search for similar items in EconPapers)
JEL-codes: D1 D14 D15 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.jhe.2021.101786

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