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House Price, Stock Price and Consumption in South Africa: A Structural VAR Approach

Author

Listed:
  • Goodness C. Aye

    () (Department of Economics, University of Pretoria)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria)

  • Alain Kaninda

    () (Department of Economics, University of Pretoria)

  • Wendy Nyakabawo

    () (Department of Economics, University of Pretoria)

  • Aarifah Razak

    () (Department of Economics, University of Pretoria)

Abstract

This paper compares the effects of real house price and real stock price shocks on consumption decisions in South Africa over the period 1966 to 2012 using a Structural Vector Autoregressive (SVAR) approach.The sample comprises quarterly, seasonally adjusted South African data on consumption, inflation, real house price, real stock price and the nominal Treasury bill rate. We find that a positive 1 percent shock in stock prices leads to about 0.05 percent increase in consumption, with the effect being short-lived, and declines after 4 quarters to become statistically insignificant. While, a 1 percent shock in house prices increase consumption by about 0.3 percent at around the 4th quarter, but thereafter declines and becomes negative from the 8th quarter. These results show that in South Africa, house prices play economically, but not statistically, a greater role than stock prices with respect to consumption expenditure.

Suggested Citation

  • Goodness C. Aye & Rangan Gupta & Alain Kaninda & Wendy Nyakabawo & Aarifah Razak, 2013. "House Price, Stock Price and Consumption in South Africa: A Structural VAR Approach," Working Papers 201309, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201309
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    References listed on IDEAS

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    1. Orazio Attanasio & Andrew Leicester & Matthew Wakefield, 2011. "Do House Prices Drive Consumption Growth? The Coincident Cycles Of House Prices And Consumption In The Uk," Journal of the European Economic Association, European Economic Association, vol. 9(3), pages 399-435, June.
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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. Aye, Goodness C. & Balcilar, Mehmet & Bosch, Adél & Gupta, Rangan, 2014. "Housing and the business cycle in South Africa," Journal of Policy Modeling, Elsevier, vol. 36(3), pages 471-491.
    3. Beatrice Simo-Kengne & Stephen Miller & Rangan Gupta & Goodness Aye, 2015. "Time-Varying Effects of Housing and Stock Returns on U.S. Consumption," The Journal of Real Estate Finance and Economics, Springer, vol. 50(3), pages 339-354, April.
    4. 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.
    5. 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.

    More about this item

    Keywords

    Consumption; House Price; Stock Prices; Structural Vector Autoregression;

    JEL classification:

    • 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
    • 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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