What causes household debt to increase in South Africa?

Christelle Meniago, Janine Mukuddem-Petersen, Mark A. Petersen and Itumeleng P. Mongale

Economic Modelling, 2013, vol. 33, issue C, 482-492

Abstract: The 2007–2008 US subprime mortgage crisis evolved into a financial crisis that negatively affected many economies in the world and was afterwards widely referred to as the global financial crisis. Since the beginning of this financial crisis of 2008–2009, South Africa experienced a significant increase in its household debt to income ratio. In the main, this paper investigates the prominent factors contributing to the rise in the level of household debt in South Africa. Specifically, we construct a model for South African household debt through the application of a Vector Error Correction Model (VECM). We employ quarterly time series data throughout the timeline 1985 Q1 to 2012 Q1 and all the econometric tests are analyzed using the statistical software package EViews 7. Our results confirmed the existence of a long run cointegrating relationship between household debt and other macroeconomic determinants. Increasing household debt was found to be significantly affected by positive changes in consumer price index, gross domestic product and household consumption. Also, house prices and household savings were found to positively contribute to a rise in household debt but this relationship was found to be statistically insignificant. Alternatively, household borrowing was found to be significantly and insignificantly affected by negative changes in income and prime rate, respectively. Ultimately, the existence of a long run cointegrated relationship enabled us to build an error correction model for household debt which will facilitate future forecasting.

Keywords: (Global) Financial crisis; Household indebtedness; Cointegration; Vector Error Correction Model; South Africa (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 H31 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:33:y:2013:i:c:p:482-492

DOI: 10.1016/j.econmod.2013.04.028

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