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A Time-Varying Approach to Analysing Fiscal Policy and Asset Prices in South Africa

Author

Listed:
  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

  • Charl Jooste

    () (Department of Economics, University of Pretoria)

  • Kanyane Matlou

    () (Department of Economics, University of Pretoria)

Abstract

This paper studies the interplay of fiscal policy and asset prices in a time varying parameter VAR. Using South African data since 1966 we are able to study the dynamic shocks of both fiscal policy and asset prices on asset prices and fiscal policy. This enables us to isolate specific periods in time to understand the size and sign of the shocks. The results seem to suggest that at least two regimes exist in which expansionary fiscal policy affected asset prices. From the 1970's until 1990 fiscal expansions were associated with declining house and slightly increased stock prices. The majority of first decade of 2000 had asset prices increasing when fiscal policy expanded. On the other hand, increasing asset prices reduced deficits for the majority of the sample period, while the recent financial crises had a marked change on the way asset prices affect fiscal policy.

Suggested Citation

  • Rangan Gupta & Charl Jooste & Kanyane Matlou, 2013. "A Time-Varying Approach to Analysing Fiscal Policy and Asset Prices in South Africa," Working Papers 201303, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201303
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    References listed on IDEAS

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    Cited by:

    1. Rangan Gupta & Chi Keung Marco Lau & Stephen M. Miller & Mark E. Wohar, 2017. "U.S. Fiscal Policy and Asset Prices: The Role of Partisan Conflict," Working papers 2017-10, University of Connecticut, Department of Economics.
    2. Ghassen El Montasser & Rangan Gupta & Charl Jooste & Stephen M. Miller, 2015. "The Time-Series Linkages between US Fiscal Policy and Asset Prices," Working Papers 201519, University of Pretoria, Department of Economics.
    3. Isabel Ruiz & Carlos Vargas-Silva, 2016. "The impacts of fiscal policy shocks on the US housing market," Empirical Economics, Springer, vol. 50(3), pages 777-800, May.

    More about this item

    Keywords

    TVP-VAR; countercyclical fiscal policy; stock prices; house prices;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • 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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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