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Housing Market Spillovers in South Africa: Evidence from an Estimated Small Open Economy DSGE Model

Author

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  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Xiaojin Sun

    (Department of Economics and Finance, University of Texas at El Paso)

Abstract

This paper evaluates, for the first time, the impact of housing market spillovers on a small open economy, namely South Africa, using a small-open economy new Keynesian dynamic stochastic general equilibrium model (SOE-NKDSGE) which explicitly incorporates a housing sector. Using quarterly data covering the period of 1971:Q1-2015:Q3, we obtain the following set of results: (a) Over the business cycle, the housing preference shock and the technology shock in the consumption sector drive most of the fluctuations of real house price; (b) The spillover effects of the housing market to the boarder economy are not negligible; (c) The central bank of South Africa has actively responded to house price movements over the past 45 years; and (d) The flexible exchange rate policy has helped South Africa maintain the macroeconomic stability to a large extent.

Suggested Citation

  • 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.
    • Handle: RePEc:pre:wpaper:201641
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    Citations

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    Cited by:

    1. Guangling Liu & Thabang Molise, 2019. "The effectiveness of the counter-cyclical loan-to-value regulation: Generic versus sector-specific rules," Working Papers 21/2019, Stellenbosch University, Department of Economics.
    2. Lenhle Dlamini & Harold Ngalawa, 2022. "Macroprudential policy and house prices in an estimated Dynamic Stochastic General Equilibrium model for South Africa," Australian Economic Papers, Wiley Blackwell, vol. 61(2), pages 304-336, June.
    3. Mustafa Ozan Yıldırım & Mehmet İvrendi, 2021. "Turkish Housing Market Dynamics: An Estimated DSGE Model," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 15(2), pages 238-267, May.
    4. Liu, Guangling & Molise, Thabang, 2019. "Housing and credit market shocks: Exploring the role of rule-based Basel III counter-cyclical capital requirements," Economic Modelling, Elsevier, vol. 82(C), pages 264-279.
    5. Rangan Gupta & Hylton Hollander & Mark E. Wohar, 2016. "The Impact of Oil Shocks in a Small Open Economy New-Keynesian Dynamic Stochastic General Equilibrium Model for South Africa," Working Papers 201652, University of Pretoria, Department of Economics.
    6. Guangling Liu & Thabang Molise, 2018. "Is Basel III counter-cyclical: The case of South Africa?," Working Papers 10/2018, Stellenbosch University, Department of Economics.

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    More about this item

    Keywords

    Housing Market; Spillovers; Monetary Policy; Dynamic Stochastic General Equilibrium Model; South Africa;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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