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THE IMPACT OF HOUSE PRICES ON CONSUMPTION IN SOUTH AFRICA: EVIDENCE FROM PROVINCIAL-LEVEL PANEL VARs

Author

Listed:
  • Beatrice D. Simo-Kengne

    (Department of Economics, University of Pretoria)

  • Rangan Gupta

    (Department of Economics, University of Pretoria)

  • Manoel Bittencourt

    (Department of Economics, University of Pretoria)

Abstract

This paper provides an empirical analysis of the role of house prices in determining the dynamic behaviour of consumption in South Africa using a panel vector autoregression (PVAR) approach to provincial level panel data covering the period of 1996 to 2010. With the shocks being identified using the standard recursive identification scheme, we find that the response of consumption to house prices shock is positive, but short-lived. In addition, we find that a positive shock to house price growth has a positive and significant effect on consumption, while the negative impact of an anticipated house price decrease causes an insignificant reduction in consumption. This suggests that house prices exhibit an asymmetric effect on consumption, with the positive effect following an increase in house prices being dominant in magnitude in comparison to a decline in consumption resulting from a negative shock to house prices.

Suggested Citation

  • Beatrice D. Simo-Kengne & Rangan Gupta & Manoel Bittencourt, 2012. "THE IMPACT OF HOUSE PRICES ON CONSUMPTION IN SOUTH AFRICA: EVIDENCE FROM PROVINCIAL-LEVEL PANEL VARs," Working Papers 201211, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201211
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    18. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    19. John N. Muellbauer, 2007. "Housing, credit and consumer expenditure," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 267-334.
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    More about this item

    Keywords

    House prices; consumption; panel vector autoregressions;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • 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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