MACRO SHOCKS AND HOUSE PRICES IN SOUTH AFRICA

Beatrice Desiree Simo-Kengne (), Rangan Gupta and Goodness Aye ()
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Goodness Aye: Department of Economics, University of Pretoria

No 201302, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper analyses the economic sources underlying the comovement of real house prices in South Africa. We use quarterly provincial-level data from 1974:Q1 to 2011:Q4. First, we disentangle the national component of real house price movements from the local (provincial or region-specific) shocks using a dynamic factor model. The results indicate that recent (2001-2011) fluctuations in house prices were mainly driven by the national component. However, historical movements in real estate prices appear to be a local phenomenon. Second, we assess the effects of monetary policy, portfolio, aggregate supply and aggregate demand shocks on the common (national) component of real house prices using a SVAR model. Our findings show that macro shocks are important sources of house price fluctuations, with portfolio and monetary policy shocks playing greater roles. An historical decomposition confirms the primary role of portfolio and monetary policy shocks in driving house price dynamics over the sample period while aggregate supply shocks are of limited influence. We conclude that comovement in real house prices is due to the combined effects of favourable and unfavourable structural shocks emanating from different sectors of the South African economy.

Keywords: Housing; Macroeconomy; Structural Vector Autoregression (search for similar items in EconPapers)
JEL-codes: C31 C32 E44 R31 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-01
New Economics Papers: this item is included in nep-afr and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201302

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