Housing market spillovers in South Africa : evidence from an estimated small open economy DSGE model

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Authors

Gupta, Rangan
Sun, Xiaojin

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Publisher

Springer

Abstract

This paper evaluates the impact of housing market spillovers on a small open economy, namely South Africa, using a small open economy new Keynesian dynamic stochastic general equilibrium model which explicitly incorporates a housing sector. Using quarterly data covering the period of 1971:Q1–2015:Q3, we obtain the following set of results: (a) over the business cycle, the housing preference shock and the technology shock in the consumption sector drive most of the fluctuations of real house price; (b) the spillover effects of the housing market to the boarder economy are not negligible; (c) the central bank of South Africa has actively responded to house price movements over the past 45 years; and (d) the flexible exchange rate policy has helped South Africa maintain the macroeconomic stability to a large extent.

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Keywords

Housing market, Spillovers, Monetary policy, Dynamic stochastic general equilibrium (DSGE) model, South Africa (SA)

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Citation

Gupta, R. & Sun, X. Housing market spillovers in South Africa: evidence from an estimated small open economy DSGE model. Empirical Economics 58, 2309–2332 (2020). https://doi.org/10.1007/s00181-018-1613-6.