Changes in household behavior after a housing wealth shock

  • Ineke Bijlsma Ineke Bijlsma

This paper investigates the effects of a sudden housing wealth shock on household savings. We deviate from other research with a model where housing wealth is set up as a risky investment, as it is speculated this was the behavior of the Dutch before the financial crisis.We then estimate the effect of housing wealth on net savings using household survey panel data and a system generalized method of moments estimator. For young homeowners the results are in line with the general predictions of our model. For older homeowners there isan interaction term with age that makes the effect of housing wealth on savings insignificant.However, the predicted marginal effect of younger homeowners is as large as 0:6, far greater than most literature, and 0:21 without accounting for age. Future research could expand the model to include age effects and added detail to increase both the realism of the modelas well as the validity of the results, allowing for a better economic interpretation of these findings.

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