Wealth, Credit Conditions, and Consumption: Evidence from South Africa. (18th April 2013)

• Record Type: Journal Article
• Authors: Aron, Janine; Muellbauer, John
• Is Part Of: Review of income and wealth. Series 59(2013)Supplement 1
• Page Start: S161
• Page End: S196
• Publication Date: 2013-04-18
• Subjects: C52 -- E21 -- E27 -- E32 -- E44 -- E51 -- E52 -- E58; consumption -- credit conditions -- credit market liberalization -- household debt -- housing collateral -- housing wealth -- liquid and illiquid wealth; National income -- Accounting -- Periodicals; 332.05
• DOI: 10.1111/roiw.12033
• Languages: English
• ISSNs: 0034-6586

Abstract

Abstract : The role of housing wealth in explaining consumption remains controversial. This paper emphasizes credit liberalization and wealth in explaining consumption behavior in South Africa, 1971 to 2005. Results support a collateral interpretation of housing wealth affecting consumption as against a life‐cycle interpretation. Liquid and illiquid wealth time series data previously constructed by the authors from household balance sheets are used. Credit conditions are proxied by a spline function entering jointly estimated consumption, debt and income expectations equations in a "latent interactive variable equation system" (LIVES). Empirical results corroborate the theory in the paper: consumption relative to income is driven by credit liberalization and its interactions with other drivers of consumption and debt, by uncertainty, income expectations, and by fluctuations in a range of asset values and in asset accumulation. The results illuminate the monetary policy transmission mechanism in South Africa.