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The Effect Of Monetary Policy On Real House Price Growth In South Africa: A Factor Augmented Vector Autoregression (Favar) Approach

Listed author(s):
  • Rangan Gupta

    ()

    (Department of Economics, University of Pretoria)

  • Marius Jurgilas

    ()

    (Financial Stability Directorate, Bank of England)

  • Alain Kabundi

    ()

    (Department of Economics and Econometrics, University of Johannesburg)

This paper assesses the impact of monetary policy on real house price growth in South Africa using a factor-augmented vector autoregression (FAVAR), estimated based on a large data set comprising of 246 quarterly series over the period 1980:01 to 2006:04. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the middle-, luxury- and affordable-segments of the housing market. The luxury-, large-middle- and medium-middle-segments are found to respond much more than the small-middle- and the affordable-segments of the housing market. More importantly, we find no evidence of the home price puzzle, observed previously by other studies that analyzed house prices using small-scale models. We put this down to the benefit gained from using a large information set.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 200905.

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Length: 11 pages
Date of creation: Jan 2009
Handle: RePEc:pre:wpaper:200905
Contact details of provider: Postal:
PRETORIA, 0002

Phone: (+2712) 420 2413
Fax: (+2712) 362-5207
Web page: http://www.up.ac.za/economics

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  27. Bai, Jushan & Ng, Serena, 2007. "Determining the Number of Primitive Shocks in Factor Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 52-60, January.
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