Financial Liberalization and the Effectiveness of Monetary Policy on House Prices in South Africa

The IUP Journal of Monetary Economics, Vol. VIII, No. 4, pp. 59-74, November 2010

Posted: 25 Jan 2011

See all articles by Rangan Gupta

Rangan Gupta

University of Pretoria - Department of Economics

Ndahiriwe Kasai

affiliation not provided to SSRN

Date Written: January 24, 2011

Abstract

This paper investigates the effectiveness of monetary policy on house prices in South Africa before and after financial liberalization, with financial liberalization being identified with the recommendations of the De Kock Commission in 1985. Using both impulse response and variance decomposition analyses performed on Structural Vector Autoregressive (SVAR) models, the paper finds that irrespective of house sizes, during the period of financial liberalization, interest rate shocks had relatively stronger effects on house price inflation. However, given that the size of these effects was nearly negligible, the result seems to indicate that house prices are exogenous and, at least, are not driven by monetary policy shocks.

Suggested Citation

Gupta, Rangan and Kasai, Ndahiriwe, Financial Liberalization and the Effectiveness of Monetary Policy on House Prices in South Africa (January 24, 2011). The IUP Journal of Monetary Economics, Vol. VIII, No. 4, pp. 59-74, November 2010, Available at SSRN: https://ssrn.com/abstract=1746585

Rangan Gupta (Contact Author)

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria, 0002
South Africa

Ndahiriwe Kasai

affiliation not provided to SSRN ( email )

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