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Abstract

South Africa experienced substantial rises in the ratios of consumption and household debt to income from 1983, for which conventional explanations in terms of income, income expectations, interest rates and wealth prove inadequate. This paper emphasizes the role of substantial financial liberalization, which is of interest for two reasons. The first is to help understand South Africa’s low saving rate, an endemic problem. The second is that unlike the UK, Scandinavia, Mexico and other countries, South Africa’s financial liberalization occurred without an asset price boom, thus illuminating the direct role of financial liberalization. Previous attempts to model financial liberalization are not fully satisfactory. Our methodological innovation is to treat financial liberalization as an unobservable, proxied by a spline function, and entering both consumption and debt equations, which are jointly estimated. We also clarify the multi-faceted effects of financial liberalization on consumption. The comprehensive solved-out consumption function uses our own constructed set of personal wealth estimates at market value and income forecasts from a forecasting equation (allowing underlying macro-fundamentals to enter the model). The empirical results corroborate the theory in the paper, confirming the importance for consumer spending of extensive financial liberalization, of fluctuations in a range of asset values and asset accumulation, and of income expectations. Results suggest that households largely pierce the corporate veil. The paper also throws important light on the monetary policy transmission mechanism in South Africa.

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Bibliographic Info

Paper provided by Centre for the Study of African Economies, University of Oxford in its series CSAE Working Paper Series with number 2000-22.

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Date of creation: 2000
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Handle: RePEc:csa:wpaper:2000-22

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1. Janine Aron & John Muellbauer, 2000. "Personal and Corporate Saving in South Africa," World Bank Economic Review, World Bank Group, vol. 14(3), pages 509-544, September.
   
   • Aron, Janine & Muellbauer, John, 2000. "Personal and Corporate Saving in South Africa," CEPR Discussion Papers 2656, C.E.P.R. Discussion Papers.
   • Janine Aron & John Muellbauer, 2000. "Personal and corporate saving in South Africa," CSAE Working Paper Series 2000-21, Centre for the Study of African Economies, University of Oxford.
2. John Muellbauer & Janine Aron, 1999. "Estimates of personal sector wealth for South Africa," CSAE Working Paper Series 1999-17, Centre for the Study of African Economies, University of Oxford.
   
   • Aron, Janine & Muellbauer, John, 2004. "Estimates of Personal Sector Wealth for South Africa," CEPR Discussion Papers 4646, C.E.P.R. Discussion Papers.
3. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, September.
4. Oriana Bandiera & Gerard Caprio Jr. & Patrick Honohan & Fabio Schiantarelli, 1998. "Does Financial Reform Raise or Reduce Savings?," Boston College Working Papers in Economics 413, Boston College Department of Economics.
   
   • Oriana Bandiera & Gerard Caprio & Patrick Honohan & Fabio Schiantarelli, 2000. "Does Financial Reform Raise or Reduce Saving?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 239-263, May.
5. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
6. Jappelli, Tullio & Pagano, Marco, 1992. "Saving, Growth and Liquidity Constraints," CEPR Discussion Papers 662, C.E.P.R. Discussion Papers.
   
   • Jappelli, Tullio & Pagano, Marco, 1994. "Saving, Growth, and Liquidity Constraints," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 83-109, February.
7. Schmidt-Hebbel, K. & Serven, L., 1997. "Saving Across the World: Puzzles and Policies," World Bank - Discussion Papers 354, World Bank.

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Cited by:

1. Janine Aron & John Muellbauer & Coen Pretorius, 2004. "A Framework for Forecasting the Components of the Consumer Price," Development and Comp Systems 0409054, EconWPA.
2. Van der Berg, Servaas & Louw, Megan & Burger, Ronelle, 2007. "Post-Apartheid South Africa: Poverty and Distribution Trends in an Era of Globalization," MPRA Paper 9065, University Library of Munich, Germany.
   
   • van der Berg, Servaas & Burger, Ronelle & Louw, Megan, 2007. "Post-Apartheid South Africa: Poverty and Distribution Trends in an Era of Globalization," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
3. Janine Aron & John Muellbauer, 2000. "Personal and Corporate Saving in South Africa," World Bank Economic Review, World Bank Group, vol. 14(3), pages 509-544, September.
   
   • Aron, Janine & Muellbauer, John, 2000. "Personal and Corporate Saving in South Africa," CEPR Discussion Papers 2656, C.E.P.R. Discussion Papers.
   • Janine Aron & John Muellbauer, 2000. "Personal and corporate saving in South Africa," CSAE Working Paper Series 2000-21, Centre for the Study of African Economies, University of Oxford.
4. Janine Aron & John Muellbauer, 2002. "Estimating Monetary Policy Rules for South Africa," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 15, pages 427-476 Central Bank of Chile.
   
   • Janine Aron & John Muellbauer, 2001. "Estimating monetary policy rules for South Africa," CSAE Working Paper Series 2001-07, Centre for the Study of African Economies, University of Oxford.
   • Janine Aron & John Muellbauer, 2000. "Estimating Monetary Policy Rules for South Africa," Working Papers Central Bank of Chile 89, Central Bank of Chile.
5. Gerald Epstein, 2002. "Employment-Oriented Central Bank Policy in an Integrated World Economy: A Reform Proposal for South Africa," Working Papers wp39, Political Economy Research Institute, University of Massachusetts at Amherst.
6. Aron, Janine & Muellbauer, John & Murphy, Anthony, 2006. "Housing wealth, credit conditions and consumption," MPRA Paper 24485, University Library of Munich, Germany.
   
   • Janine Aron & John Muellbauer, 2006. "Housing Wealth, Credit Conditions and Consumption," CSAE Working Paper Series 2006-08, Centre for the Study of African Economies, University of Oxford.
7. Chance Mwabutwa & Manoel Bittencourt & Nicola Viegi, 2012. "Financial Reforms and Consumption Behaviour in Malawi," Working Papers 306, Economic Research Southern Africa.
   
   • Manoel Bittencourt & Chance Mwabutwa & Nicola Viegi, 2012. "Financial Reforms and Consumption Behaviour in Malawi," Working Papers 201210, University of Pretoria, Department of Economics.
8. Muellbauer, John & Williams, David M, 2011. "Credit Conditions and the Real Economy: The Elephant in the Room," CEPR Discussion Papers 8386, C.E.P.R. Discussion Papers.
9. Janine Aron & John Muellbauer, 2007. "Review of Monetary Policy in South Africa since 1994," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(5), pages 705-744, November.
   
   • Janine Aron & John Muellbauer, 2006. "Review of Monetary Policy in South Africa since 1994," CSAE Working Paper Series 2006-07, Centre for the Study of African Economies, University of Oxford.
10. Barend de Beer & Nonhlanhla Nhlapo & Zeph Nhleko, 2010. "A perspective on the South African flow of funds compilation - theory and analysis," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 57th ISI Session, Durban, August 2009, volume 33, pages 239-248 Bank for International Settlements.
11. John Muellbauer & Emilio Fernandez-Corugedo, 2004. "Consumer credit conditions in the UK," Money Macro and Finance (MMF) Research Group Conference 2003 70, Money Macro and Finance Research Group.
12. David M. Williams, 2010. "Consumption, wealth and credit liberalisation in Australia," Economics Series Working Papers 492, University of Oxford, Department of Economics.
13. Morris A. Davis & Michael G. Palumbo, 2001. "A primer on the economics and time series econometrics of wealth effects," Finance and Economics Discussion Series 2001-09, Board of Governors of the Federal Reserve System (U.S.).
14. Aron, Janine & Muellbauer, John, 2006. "Review of Monetary Policy in South Africa: 1994-2004," CEPR Discussion Papers 5831, C.E.P.R. Discussion Papers.
15. Aron, Janine & Muellbauer, John & Prinsloo, Johan, 2006. "Estimating the Balance Sheet of the Personal Sector in an Emerging Market Country: South Africa 1975-2003," Working Papers RP2006/99, World Institute for Development Economic Research (UNU-WIDER).

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