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House Prices and Balance of Trade Dynamics in South Africa: Evidence from an Agnostic Identification Procedure

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  • Beatrice D. Simo-Kengne
  • Rangan Gupta
  • Goodness C. Aye

Abstract

In this paper, we analyze the relationship between house prices and the trade balance in South Africa using an agnostic identification procedure. We apply a Bayesian vector autoregression (VAR) to quarterly data from 1979:Q1 to 2011:Q4 and find that 1% decline in house prices can improve the trade balance by 0.2%. This suggests that house prices represent an additional instrument for trade balance adjustment besides the traditional exchange rate channel. Moreover, the effect of housing demand shock on the exchange rate is short-lived and insignificant; hence, house prices affect the trade balance mainly through the wealth and balance sheet effects on consumption and investment, respectively.

Suggested Citation

  • Beatrice D. Simo-Kengne & Rangan Gupta & Goodness C. Aye, 2015. "House Prices and Balance of Trade Dynamics in South Africa: Evidence from an Agnostic Identification Procedure," Journal of Housing Research, Taylor & Francis Journals, vol. 24(1), pages 107-126, January.
    • Handle: RePEc:taf:rjrhxx:v:24:y:2015:i:1:p:107-126
    DOI: 10.1080/10835547.2015.12092094
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    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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