Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model

Vittorio Peretti (), Rangan Gupta and Roula Inglesi-Lotz
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Vittorio Peretti: Department of Economics, University of Pretoria

No 201216, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the existence of spillovers from the housing sector onto consumption and the interest rate for South Africa using a time-varying vector autoregressive (TVP-VAR) model with stochastic volatility. In this regard, we estimate a three-variable TVP-VAR model comprising of real consumption growth rate, the nominal three-months Treasury bill rate and the growth rate of real house prices. The results suggest that, in general, consumption responded positively to a house price shock over the entire sample, with the effect being stronger post financial liberalization. On the other hand, a positive delayed response of nominal interest rate followed a house price shock, with the effect being weaker post financial liberalization until the South African Reserve Bank (SARB) moved to the official inflation-targeting regime. The effect of house prices on both consumption and interest rate was understandably weak during the financial crisis.

Keywords: Bayesian Inference, Consumption, House Price, Markov Chain Monte Carlo, Monetary Policy, Structural Vector Autoregression; Stochastic Volatility, Time-Varying Paremeter (search for similar items in EconPapers)
JEL-codes: C11 C15 C32 E31 E32 E44 E52 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2012-05
New Economics Papers: this item is included in nep-afr, nep-fdg and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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