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The effect of monetary policy on real house price growth in South Africa: A factor-augmented vector autoregression (FAVAR) approach

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  • Gupta, Rangan
  • Jurgilas, Marius
  • Kabundi, Alain

Abstract

This paper assesses the impact of monetary policy on real house price growth in South Africa using a factor-augmented vector autoregression (FAVAR), estimated using a large data set comprising of 246 quarterly series over the period 1980:01 to 2006:04. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the middle-, luxury- and affordable-segments of the housing market. The luxury-, large-middle- and medium-middle-segments are found to respond much more than the small-middle- and the affordable-segments of the housing market. More importantly, we find no evidence of the home price puzzle, observed previously by other studies that analyzed house prices using small-scale models. We put this down to the benefit gained from using a large information set.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 27 (2010)
Issue (Month): 1 (January)
Pages: 315-323

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Handle: RePEc:eee:ecmode:v:27:y:2010:i:1:p:315-323

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Monetary policy Real house price growth FAVAR;

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