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The Long-Run Relationship between Consumption, House Prices and Stock Prices in South Africa: Evidence from Provincial-Level Data

Author

Listed:
  • Nicholas Apergis

    (Department of Banking and Financial Management, University of Piraeus, Greece)

  • Beatrice D. Simo-Kengne

    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

Abstract

This paper empirically examines the long-run impact and short-term dynamics of housing wealth and financial wealth on household consumption in South Africa using annual provincial-level panel data for the period 1995 to 2011. Based on available data, recently developed econometric techniques for heterogeneous panel cointegration analysis are applied which allows us to circumvent the data restrictions, given that observations are pooled across provinces. The empirical results provide strong evidence of a stable long-run relationship between household consumption, income and (housing and stock market) wealth in South Africa. We then estimate the long-run elasticities of income and wealth with respect to consumption. The results indicate that income elasticity is not significantly different from unity, hence corroborating the permanent income hypothesis. As expected, the marginal propensity to consume out of housing wealth and stock market wealth is positive and significant, implying that consumption spending adjusts to both house price and stock price fluctuations. Interestingly, the marginal propensity to consume out of housing wealth is found to be smaller than that of the stock market wealth. Based on the panel ECM, the causality between consumption and both forms of wealth is bi-directional in the long-run, which contrasts the unidirectional causality running from wealth to consumption in the short run.

Suggested Citation

  • Nicholas Apergis & Beatrice D. Simo-Kengne & Rangan Gupta, 2013. "The Long-Run Relationship between Consumption, House Prices and Stock Prices in South Africa: Evidence from Provincial-Level Data," Working Papers 201326, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201326
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    Cited by:

    1. Paetz, Michael & Gupta, Rangan, 2016. "Stock price dynamics and the business cycle in an estimated DSGE model for South Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 44(C), pages 166-182.
    2. repec:ipg:wpaper:2014-466 is not listed on IDEAS
    3. Furkan Emirmahmutoglu & Mehmet Balcilar & 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 201411, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Housing and stock market wealth effects; consumption; panel cointegration; South African provinces;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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