Aye, Goodness ChiomaGupta, RanganModise, Mampho P.2015-08-212015-08-212015-08Aye, GC, Gupta, R & Modise, MP 2015, 'Do stock prices impact consumption and interest rate in South Africa? Evidence from a time-varying vector autoregressive model', Journal of Emerging Market Finance, vol. 14, no. 2, pp. 176-196.0972-6527 (print)0973-0710 (online)10.1177/0972652715584267http://hdl.handle.net/2263/49419This paper investigates the existence of spillovers from stock prices onto consumption and the interest rate for South Africa using a time-varying vector autoregressive (TVP-VAR) model with stochastic volatility. In this regard, we estimate a three-variable TVP-VAR model comprising of real consumption growth rate, the nominal three-months Treasury bill rate and the growth rate of real stock prices. We find that the impact of a real stock price shocks on consumption is in general positive, with large and significant effects observed at the one-quarter ahead horizon. However, there is also evidence of significant negative spillovers from the stock market to consumption during the financial crisis, at both short and long-horizons. Monetary policy response to stock price shocks has been persistent, and strong especially post-the financial liberalization in 1985, but became weaker during the financial crisis. Overall, we provide evidence of significant time-varying spillovers on consumption and interest rate from the stock market.en© 2015 Institute for Financial Management and Research. Sage Publications.Bayesian inferenceConsumptionStock priceMarkov chain Monte Carlo (MCMC)Monetary policyStructural vector autoregressionStochastic volatilityTime-varying parameter (TVP)Time-varying parameter vector autoregressive (TVP-VAR)Postprint Article