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

Listed author(s):
  • 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)

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.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201309.

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Length: 10 pages
Date of creation: Feb 2013
Handle: RePEc:pre:wpaper:201309
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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  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.
  2. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
  3. Sousa, Ricardo M., 2009. "Wealth effects on consumption: evidence from the euro area," Working Paper Series 1050, European Central Bank.
  4. Peter C. B. Phillips & Yangru Wu & Jun Yu, 2011. "EXPLOSIVE BEHAVIOR IN THE 1990s NASDAQ: WHEN DID EXUBERANCE ESCALATE ASSET VALUES?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(1), pages 201-226, 02.
  5. Sonali Das & Rangan Gupta & Patrick T Kanda, 2010. "Bubbles in South African House Prices and their Impact on Consumption," Working Papers 201017, University of Pretoria, Department of Economics.
  6. Campbell, John Y. & Cocco, Joao F., 2007. "How do house prices affect consumption? Evidence from micro data," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 591-621, April.
  7. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
  8. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, June.
  9. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel S., 2012. "Wealth effects in emerging market economies," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 155-166.
  10. Sydney Ludvigson & Charles Steindel, 1999. "How important is the stock market effect on consumption?," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 29-51.
  11. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
  12. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2015. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-varying Vector Autoregressive Model," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 14(2), pages 176-196, August.
  13. Orazio P. Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2009. "Booms and Busts: Consumption, House Prices and Expectations," Economica, London School of Economics and Political Science, vol. 76(301), pages 20-50, 02.
  14. Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
  15. Bjørnland, Hilde C. & Jacobsen, Dag Henning, 2010. "The role of house prices in the monetary policy transmission mechanism in small open economies," Journal of Financial Stability, Elsevier, vol. 6(4), pages 218-229, December.
  16. Stephen Millard & John Power, 2004. "The effects of stock market movements on consumption and investment: does the shock matter?," Bank of England working papers 236, Bank of England.
  17. Ludwig, Alexander & Sløk, Torsten, 2004. "The relationship between stock prices, house prices and consumption in OECD," Sonderforschungsbereich 504 Publications 04-12, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  18. Musso, Alberto & Neri, Stefano & Stracca, Livio, 2011. "Housing, consumption and monetary policy: How different are the US and the euro area?," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3019-3041, November.
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