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Financial Liberalization and the Effectiveness of Monetary Policy on House Prices in South Africa

Author

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  • Ndahiriwe Kasai
  • Rangan Gupta

Abstract

This paper investigates the effectiveness of monetary policy on house prices in South Africa before and after financial liberalization, with financial liberalization being identified with the recommendations of the De Kock Commission in 1985. Using both impulse response and variance decomposition analyses performed on Structural Vector Autoregressive (SVAR) models, the paper finds that irrespective of house sizes, during the period of financial liberalization, interest rate shocks had relatively stronger effects on house price inflation. However, given that the size of these effects was nearly negligible, the result seems to indicate that house prices are exogenous and, at least, are not driven by monetary policy shocks.

Suggested Citation

  • Ndahiriwe Kasai & Rangan Gupta, 2010. "Financial Liberalization and the Effectiveness of Monetary Policy on House Prices in South Africa," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(4), pages 59-74, November.
  • Handle: RePEc:icf:icfjmo:v:08:y:2010:i:3:p:59-74
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    Cited by:

    1. Goodness C. Aye & Mehmet Balcilar & Rangan Gupta & Charl Jooste & Stephen M. Miller & Zeynel Abidin Ozdemir, 2012. "Fiscal Policy Shocks and the Dynamics of Asset Prices: The South African Experience," Working papers 2012-27, University of Connecticut, Department of Economics.
    2. 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 mode," Working Papers 15-26, Eastern Mediterranean University, Department of Economics.
    3. Ahdi N. Ajmi & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2014. "Real Estate Markets and Uncertainty Shocks: A Variance Causality Approach," Working Papers 201436, University of Pretoria, Department of Economics.
    4. Kolisi, Nwabisa & Phiri, Andrew, 2017. "Changes in the relationship between interest rates and housing prices in South Africa around the 2007 financial crisis," MPRA Paper 80173, University Library of Munich, Germany.
    5. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2014. "A time-varying approach to analysing fiscal policy and asset prices in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 6(1), pages 46-63, April.
    6. Rangan Gupta & Marius Jurgilas & Alain Kabundi & Stephen M. Miller, 2011. "Monetary policy and housing sector dynamics in a large-scale Bayesian vector autoregressive model," International Journal of Strategic Property Management, Taylor & Francis Journals, vol. 16(1), pages 1-20, August.
    7. Rangan Gupta & Alain Kabundi, 2010. "The effect of monetary policy on house price inflation: A factor augmented vector autoregression (FAVAR) approach," Journal of Economic Studies, Emerald Group Publishing, vol. 37(6), pages 616-626, November.
    8. Alexander Zimper, 2014. "The minimal confidence levels of Basel capital regulation," Journal of Banking Regulation, Palgrave Macmillan, vol. 15(2), pages 129-143, April.
    9. Beatrice D. Simo-Kengne & Rangan Gupta & Goodness C. Aye, 2013. "Macro Shocks And House Prices In South Africa," Working Papers 201302, University of Pretoria, Department of Economics.
    10. Nikolaos Antonakakis & Mehmet Balcilar & Rangan Gupta & Clement Kyei, 2016. "Components of Economic Policy Uncertainty and Predictability of US Stock Returns and Volatility: Evidence from a Nonparametric Causality-in-Quantile Approach," Working Papers 201639, University of Pretoria, Department of Economics.
    11. Simo-Kengne, Beatrice D. & Balcilar, Mehmet & Gupta, Rangan & Reid, Monique & Aye, Goodness C., 2013. "Is the relationship between monetary policy and house prices asymmetric across bull and bear markets in South Africa? Evidence from a Markov-switching vector autoregressive model," Economic Modelling, Elsevier, vol. 32(C), pages 161-171.
    12. Rangan Gupta & Xiaojin Sun, 2016. "Housing Market Spillovers in South Africa: Evidence from an Estimated Small Open Economy DSGE Model," Working Papers 201641, University of Pretoria, Department of Economics.
    13. Rangan Gupta & Marius Jurgilas & Stephen M. Miller & Dylan van Wyk, 2010. "Financial Market Liberalization, Monetary Policy, and Housing Price Dynamics," Working Papers 201009, University of Pretoria, Department of Economics.
    14. Phiri, Andrew, 2016. "Asymmetric pass-through effects from monetary policy to housing prices in South Africa," MPRA Paper 70258, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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