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"Ripple" Effects in South African House Prices

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Author Info

  • Mehmet Balcilar

    ()
    (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus,via Mersin 10, Turkey)

  • Abebe D. Beyene

    ()
    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

  • Monaheng Seleteng

    ()
    (Department of Economics, University of Pretoria)

Abstract

This paper analyzes the so-called “ripple” effect of house prices in five major metropolitan areas of South Africa, namely, Cape Town, Durban Unicity, Greater Johannesburg, Port Elizabeth/Uitenhage and Pretoria, based on available quarterly data covering the period of 1966:Q1 to 2010:Q1. Following the extant literature, we contextualize the issue as a unit root problem, with one expecting the ratios of metropolitan house price to national house price to exhibit stationarity to an underlying trend value, if there is diffusion in house prices. Using Bayesian, parametric non-linear and non-parametric unit root tests, besides the standard linear parametric tests of stationarity with and without structural break, we find the linear unit root tests, with and without structural break, provide quite distinct evidence of the existence of house price diffusion, which, in turn are overwhelmingly supported by the Bayesian unit root tests. With the exception of the large middle-segment for Cape Town, the robustness of the results are confirmed by at least one of the non-linear or non-parametric unit root tests, which have been shown to have very good power properties in the presence of structural breaks and non-linearities or regime-switching. Overall, we find strong and robust evidence of ripple effect in the five major metropolitan areas of South Africa.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201102.

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Length: 27 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:pre:wpaper:201102

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Keywords: House-price ratios; “Ripple” effects; Time series properties; Unit root tests;

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Cited by:
  1. Tsangyao Chang & Tsung-pao Wu & Rangan Gupta, 2013. "Are House Prices in South Africa Really Non-Stationary? Evidence from SPSM-Based Panel KSS Test with a Fourier Function," Working Papers, University of Pretoria, Department of Economics 201324, University of Pretoria, Department of Economics.
  2. Roula Inglesi-Lotz & Rangan Gupta, 2011. "Relationship between House Prices and Inflation in South Africa: An ARDL Approach," Working Papers, University of Pretoria, Department of Economics 201130, University of Pretoria, Department of Economics.
  3. Nicholas Apergis & Beatrice D. Simo-Kengne & Rangan Gupta, 2013. "Convergence in Provincial-Level South African House Prices: Evidence from the Club Convergence and Clustering Procedure," Working Papers, University of Pretoria, Department of Economics 201322, University of Pretoria, Department of Economics.
  4. Beatrice D. Simo-Kengne & Manoel Bittencourt & Rangan Gupta, 2011. "House Prices and Economic Growth in South Africa: Evidence from Provincial-Level Data," Working Papers, University of Pretoria, Department of Economics 201116, University of Pretoria, Department of Economics.

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