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 (),
Monique Reid and
Goodness C. Aye ()
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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
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)
New Economics Papers: this item is included in nep-afr, nep-mon and nep-ure
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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)
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