Is the relationship between monetary policy and house prices asymmetric in South Africa? Evidence from a Markov-Switching Vector Autoregressive mode

Beatrice D. Simo - Kengne (), Mehmet Balcilar, Rangan Gupta, Monique Reid and Goodness C. Aye ()
Additional contact information
Beatrice D. Simo - Kengne: Department of Economics, University of Pretoria
Goodness C. Aye: Department of Economics, University of Pretoria
Authors registered in the RePEc Author Service: Beatrice Desiree Simo-Kengne ()

No 14/2012, Working Papers from Stellenbosch University, Department of Economics

Abstract: This paper examines asymmetries in the impact of monetary policy on the middle segment of the South African housing market from 1966:M2 to 2011:M12. We use Markov-switching vector autoregressive (MS-VAR) in which parameters change according to the phase of the housing cycle. The results suggest that monetary policy is not neutral as house price growth decreases substantially with a contractionary monetary policy. We find that the impact of monetary policy is larger in bear regime than in bull regime; indicating the role of information asymmetry in reinforcing the financial constraint of economic agents. As expected, monetary policy reaction to a positive house price shock is found to be stronger in the bull regime. This suggests that central banker reacts more in bull regime in order to prevent potential crisis related to the subsequent bust in house prices bubbles which are more prominent in bull markets. These results substantiate important asymmetries in the dynamics of house prices in relation to monetary policy, vindicating the advantages of generating regime dependent impulse response functions.

Keywords: Monetary policy; House prices; Regime switching (search for similar items in EconPapers)
JEL-codes: C22 C32 E52 R31 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-afr, nep-mon and nep-ure
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.ekon.sun.ac.za/wpapers/2012/wp142012/wp-14-2012.pdf First version, 2012 (application/pdf)

Related works:
Working Paper: Is the relationship between monetary policy and house prices asymmetric in South Africa? Evidence from a Markov-Switching Vector Autoregressive mode (2012)
Working Paper: IS THE RELATIONSHIP BETWEEN MONETARY POLICY AND HOUSE PRICES ASYMMETRIC IN SOUTH AFRICA? EVIDENCE FROM A MARKOV-SWITCHING VECTOR AUTOREGRESSIVE MODEL (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sza:wpaper:wpapers166

Access Statistics for this paper

More papers in Working Papers from Stellenbosch University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Melt van Schoor ().