Abstract:
This paper compares the effects of real house price and real stock price shocks on consumption
decisions in South Africa over the period 1966 to 2012 using a Structural Vector Autoregressive
(SVAR) approach.The sample comprises quarterly, seasonally adjusted South African data on
consumption, inflation, real house price, real stock price and the nominal Treasury bill rate. We find
that a positive 1 percent shock in stock prices leads to about 0.05 percent increase in consumption,
with the effect being short-lived, and declines after 4 quarters to become statistically insignificant.
While, a 1 percent shock in house prices increase consumption by about 0.3 percent at around the 4th
quarter, but thereafter declines and becomes negative from the 8thquarter. These results show that in
South Africa, house prices play economically, but not statistically, a greater role than stock prices with
respect to consumption expenditure.
