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

Listed author(s):
  • 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)

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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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
Handle: RePEc:pre:wpaper:201211
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Web page: http://www.up.ac.za/economics

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