THE EFFECT OF MONETARY POLICY ON REAL HOUSE PRICE GROWTH IN SOUTH AFRICA: A FACTOR AUGMENTED VECTOR AUTOREGRESSION (FAVAR) APPROACH

Rangan Gupta, Marius Jurgilas and Alain Kabundi ()

No 200905, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper assesses the impact of monetary policy on real house price growth in South Africa using a factor-augmented vector autoregression (FAVAR), estimated based on a large data set comprising of 246 quarterly series over the period 1980:01 to 2006:04. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the middle-, luxury- and affordable-segments of the housing market. The luxury-, large-middle- and medium-middle-segments are found to respond much more than the small-middle- and the affordable-segments of the housing market. More importantly, we find no evidence of the home price puzzle, observed previously by other studies that analyzed house prices using small-scale models. We put this down to the benefit gained from using a large information set.

Keywords: Monetary Policy; Real House Price Growth; FAVAR (search for similar items in EconPapers)
JEL-codes: C32 E52 R2 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2009-01
New Economics Papers: this item is included in nep-afr, nep-mac and nep-mon
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Journal Article: The effect of monetary policy on real house price growth in South Africa: A factor-augmented vector autoregression (FAVAR) approach (2010)
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