Working Paper 133 - Monetary Policy Transmission, House Prices and Consumer Spending in South Africa: An SVAR Approach
AbstractThe study used a structural vector autoregressive approach to estimate and quantify the percentage decline in consumption expenditure, which can be attributed to changes in housing wealth, after monetary policy tightening. The effects are separated using a disaggregated Absa house price data, namely all-size, large-size and medium-size and small-size house prices.The results suggest that at the peak of the interest rate effects on consumption the combined effect of housing wealth and credit extension changes, following a monetary policy tightening, was a decline of 9.8 per cent in all-size, 3.7 per cent in small-size, 4.7 per cent in medium-size and 5.3 per cent in large-size houses. The findings indicate heterogeneity in the transmission of interest rate effects operating through housing wealth and the credit channel. Moreover, we reached the same conclusion after modifying the baseline model by adding the restrictions that house price also respond to both aggregate demand and aggregate supply variables. Lastly, the differences between the counterfactual consumption and the baseline consumption responses, provided little support for the assumption that the housing wealth channel is the dominant source of monetary policy transmission to consumption.This paper thus provided an understanding of the indirect channels through which monetary policy influences real variables by focusing on monetary policy transmission to consumption via house prices. We showed interest rate effects, working through both housing wealth and the credit channel, influence real spending. Thus, interest rate effects operating through housing wealth and the credit channel are felt differently by the four house categories. Moreover, the differences between the consumption impulse responses from the counterfactual and baseline scenarios provide little support that combined house wealth and credit effect channels are the dominant sources of monetary policy transmission to consumption. These findings suggest that the direct effects of high interest rates on consumption appear to be more important in transmitting monetary policy to the economy than through the indirect effects. Hence, monetary policy tightening can only marginally weaken inflationary pressures arising from excessive consumption operating through housing wealth and the credit channel.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by African Development Bank in its series Working Paper Series with number 317.
Date of creation: 25 Jun 2011
Date of revision:
Contact details of provider:
Postal: 15 Avenue du Ghana P.O.Box 323-1002 Tunis-Belvedère, Tunisia
Phone: (+216) 71 10 39 00
Fax: (225) 21.77.53
Web page: http://www.afdb.org/en/knowledge/publications/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ben S. Bernanke & Mark Gertler, 1995.
"Inside the Black Box: The Credit Channel of Monetary Policy Transmission,"
NBER Working Papers
5146, National Bureau of Economic Research, Inc.
- Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
- Bernanke, Ben & Gertler, Mark, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Working Papers 95-15, C.V. Starr Center for Applied Economics, New York University.
- Andrea Brischetto & Graham Voss, 1999. "A Structural Vector Autoregression Model of Monetary Policy in Australia," RBA Research Discussion Papers rdp1999-11, Reserve Bank of Australia.
- Olivier Blanchard & Roberto Perotti, 2002.
"An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output,"
The Quarterly Journal of Economics,
MIT Press, vol. 117(4), pages 1329-1368, November.
- Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
- Christopher Mayer, 2002. "Monetary policy transmission to residential investment : commentary," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 159-161.
- Calza, Alessandro & Monacelli, Tommaso & Stracca, Livio, 2006.
"Mortgage markets, collateral constraints, and monetary policy: Do institutional factors matter?,"
CFS Working Paper Series
2007/10, Center for Financial Studies (CFS).
- Calza, Alessandro & Monacelli, Tommaso & Stracca, Livio, 2007. "Mortgage Markets, Collateral Constraints, and Monetary Policy: Do Institutional Factors Matter?," CEPR Discussion Papers 6231, C.E.P.R. Discussion Papers.
- Jonathan McCarthy & Richard W. Peach, 2002. "Monetary policy transmission to residential investment," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 139-158.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Adeleke Oluwole Salami).
If references are entirely missing, you can add them using this form.