Financial crisis and household indebtedness in South Africa : an econometric analysis

[摘要] The 2007-2008 US subprime mortgage crisis evolved into a financial crisis thatnegatively affected many economies in the world and therefore it was widely referred toas the global financial crisis. Since the beginning of this financial crisis of 2008-2009,South Africa experienced a significant increase in its household debt to income ratio. Inthe main, the aim of this dissertation is to investigate the prominent factors contributingto the rise in the level of household debt in South Africa. Also, we study the response ofhousehold debt to various shocks originating from the aforementioned crisis.Additionally, in the context of our timeline (1985 Q1-2012 Q1) we will extrapolatepossible graphical trends in the rise and fall of household indebtedness in South Africaassociated with various crises. Working from past research papers and a theoreticalframework developed by Franco Modigliani and Milton Friedman, sevenmacroeconomic variables will be considered to examine the rise of household borrowingto income namely; the real house price index, consumer price index. real income, realprime rate, real household consumption expenditure, real gross domestic product and realhousehold savings. Both a long-run cointegration analysis and a short-run errorcorrection model will be used to evaluate the relationship between household debt andthe chosen variables by estimating a Vector Error Correction Model. Furthermore, theVariance Decomposition and the Generalized Impulse Response Function will beutilized to assess the impact of household debt to various shocks emanating from the2008-2009 financial crisis. The different models and tests conducted in this research willbe executed using the statistical software package EVIEWS 7. Based on the results,household debt was seen to have been fairly affected by the 2008-2009 financial crisis.The cointegration analysis maintains that in the long run, household borrowing ispositively and significantly determined by consumer price index and real householdconsumption. In addition, it confirms that household borrowing is negatively affected byreal household income and real GOP. The rest of the variables were found insignificant.Nevertheless, the short run error correction model reveals that about 3.6% of thedisequilibrium will be corrected each quarter for the equilibrium state to be restored.Also, the Variance Decomposition results confirmed that the South African householddebt is mostly affected by shocks from real house price index, real household income,real household consumption and real household savings, respectively. Furthermore, the Generalized Impulse Response Function results established the significant positiveresponse of household debt to a shock from real house price index and real householdconsumption. The response of debt to shocks from consumer price index, real householdsavings and real income is negative and this outcome is confirmed by the theory.However, the response of debt shows fluctuating behaviours to shocks from LRIN,LRPR and LRGDP over the estimated period.In conclusion, our econometric investigation highlighted the main causes of the highlevels of household debt in South Africa both in the short and long run. The GeneralizedImpulse Response Functions confirm that shocks like the occurrence of the 2007-2008financial crisis will have a significant impact on real house price index, consumer priceindex, real household consumption and real household savings. The Engle grangerresults show that there exist no significant relationship between household debt andunemployment in South Africa over the period 1980 to 2010. However, we propose thatthis result may have been significant if quarterly unemployment data was available andincluded in the main data set. Finally, based on the stability, validity and reliability ofour model, we recommend its use to facilitate policy analysis and decision makingregarding household debt levels in South Africa.

[发布机构] North-West University