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

  • 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
Date of revision:
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. 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, 06.
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  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. 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 1057-72, June.
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  14. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel, 2009. "Wealth effects in emerging market economies," Working Paper Series 1000, European Central Bank.
  15. Goodness C. Aye & Rangan Gupta & Mampho P. Modise, 2012. "Do Stock Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201224, University of Pretoria, Department of Economics.
  16. 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, 06.
  17. 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.
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