Abstract:
This paper provides an empirical analysis of the role of house prices in determining the
dynamic behaviour of consumption in South Africa using a panel vector autoregression
(PVAR) approach to provincial level panel data covering the period of 1996 to 2010. With
the shocks being identified using the standard recursive identification scheme, we find that
the response of consumption to house prices shock is positive, but short-lived. In addition,
we find that a positive shock to house price growth has a positive and significant effect on
consumption, while the negative impact of an anticipated house price decrease causes an
insignificant reduction in consumption. This suggests that house prices exhibit an
asymmetric effect on consumption, with the positive effect following an increase in house
prices being dominant in magnitude in comparison to a decline in consumption resulting
from a negative shock to house prices.
