Gupta, RanganJurgilas, MariusKabundi, Alain2010-04-142010-04-142010-01Gupta, R, Jurgilas, M & Kabundi, A 2010, 'The effect of monetary policy on real house price growth in South Africa: a factor-augmented vector autoregression (FAVAR) approach', Economic Modelling, vol. 27, no. 1, pp. 315-323. [http://www.sciencedirect.com/science/journal/02649993]0264-999310.1016/j.econmod.2009.09.011http://hdl.handle.net/2263/13912This paper assesses the impact of monetary policy on real house price growth in South Africa using a factor-augmented vector autoregression (FAVAR), estimated using a large data set comprising of 246 quarterly series over the period 1980:01 to 2006:04. The results based on the impulse response functions indicate that, in general, house price inflation responds negatively to monetary policy shock, but the responses are heterogeneous across the middle-, luxury- and affordable-segments of the housing market. The luxury-, large-middle- and medium-middle-segments are found to respond much more than the small-middle- and the affordable-segments of the housing market. More importantly, we find no evidence of the home price puzzle, observed previously by other studies that analyzed house prices using small-scale models. We put this down to the benefit gained from using a large information set.enElsevierFactor augmented vector autoregression (FAVAR)Monetary policy -- South Africa -- Mathematical modelsHousing -- Prices -- South AfricaReal property -- Prices -- South AfricaPostprint Article