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Changes in the relationshp between interest rates and housing prices in South Africa around the 2007 financial crisis

Nwabisa Kolisi () and Andrew Phiri ()
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Nwabisa Kolisi: Department of Economics, Nelson Mandela University

No 1704, Working Papers from Department of Economics, Nelson Mandela University

Abstract: In this study we investigate the cointegration relationship between interest rates and housing prices in South Africa using the autoregressive distributive (ARDL) model applied to quarterly data covering the post inflation targeting period of 2002:Q1 and 2016:Q4. Our empirical consists of splitting the empirical data into two sub-periods, one corresponding to the pre-crisis period (i.e. 2002:Q1 – 2008:Q2) and the other corresponding to the post-crisis periods (i.e. 2008:Q3 – 2016:Q4). Indeed, our empirical results confirm changing dynamics of the interest rate-housing price relationship in light of the financial crisis with the Reserve Bank appearing to respond to changes in the housing price growth in the post-crisis period. This results reflect the strong macropudential stance which the Reserve Bank has recently assumed after the sub-prime crisis and such policy stance critically depends on monitoring asset prices such as housing and property prices as a means of assessing market conditions.

Keywords: Interest rates; Housing prices; Monetary policy; Cointegration; ARDL model; South Africa; Emerging economy. (search for similar items in EconPapers)
JEL-codes: C22 C51 E31 E52 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2017-07, Revised 2017-07
New Economics Papers: this item is included in nep-mac and nep-ure
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http://repec.mandela.ac.za/RePEc/mnd/wpaper/paper.1704.pdf First version, 2017 (application/pdf)

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