Financial liberalization and the effectiveness of monetary policy on house prices in South Africa

Abstract

This paper investigates the effectiveness of monetary policy on house prices in South Africa before and after financial liberalization, with financial liberalization being identified with the recommendations of the De Kock Commission in 1985. Using both impulse response and variance decomposition analyses performed on Structural Vector Autoregressive (SVAR) models, the paper finds that irrespective of house sizes, during the period of financial liberalization, interest rate shocks had relatively stronger effects on house price inflation. However, given that the size of these effects was nearly negligible, the result seems to indicate that house prices are exogenous and, at least, are not driven by monetary policy shocks.