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THE IMPACT OF HOUSE PRICES ON CONSUMPTION IN SOUTH AFRICA: EVIDENCE FROM PROVINCIAL-LEVEL PANEL VARs

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Author Info

  • Beatrice D. Simo-Kengne

    ()
    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

  • Manoel Bittencourt

    ()
    (Department of Economics, University of Pretoria)

Abstract

This paper provides an empirical analysis of the role of house prices in determining the dynamic behaviour of consumption in South Africa using a panel vector autoregression (PVAR) approach to provincial level panel data covering the period of 1996 to 2010. With the shocks being identified using the standard recursive identification scheme, we find that the response of consumption to house prices shock is positive, but short-lived. In addition, we find that a positive shock to house price growth has a positive and significant effect on consumption, while the negative impact of an anticipated house price decrease causes an insignificant reduction in consumption. This suggests that house prices exhibit an asymmetric effect on consumption, with the positive effect following an increase in house prices being dominant in magnitude in comparison to a decline in consumption resulting from a negative shock to house prices.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201211.

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Length: 20 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:pre:wpaper:201211

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Keywords: House prices; consumption; panel vector autoregressions;

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Cited by:
  1. Beatrice D. Simo-Kengne & Mehmet Balcilar & Rangan Gupta & Monique Reid & Goodness C. Aye, 2012. "Is The Relationship Between Monetary Policy And House Prices Asymmetric In South Africa? Evidence From A Markov-Switching Vector Autoregressive Model," Working Papers, University of Pretoria, Department of Economics 201222, University of Pretoria, Department of Economics.
  2. Furkan Emirmahmutoglu & Nicholas Apergis & Beatrice D. Simo-Kengne & Tsangyao Chang & Rangan Gupta, 2014. "Causal relationship between asset prices and output in the US: Evidence from state-level panel Granger causality test," Working Papers, Department of Research, Ipag Business School 2014-466, Department of Research, Ipag Business School.
  3. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel A. Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working Papers, University of Pretoria, Department of Economics 201228, University of Pretoria, Department of Economics.
  4. Tsangyao Chang & Wen-Chi Liu & Goodness C. Aye & Rangan Gupta, 2013. "Are there Housing Bubbles in South Africa? Evidence from SPSM-Based Panel KSS Test with a Fourier Function," Working Papers, University of Pretoria, Department of Economics 201377, University of Pretoria, Department of Economics.

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