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Wealth, Credit Conditions, and Consumption: Evidence from South Africa


  • Note: Our research was supported by grants from the Open Society Foundation and the Oxford Martin School. Janine Aron is grateful to the International Association for Research in Income and Wealth for support to attend the Statistics South Africa–IARIW conference on Experiences and Challenges in measuring National Income, Wealth, Poverty, and Inequality in African Countries, in September 2011. We are grateful for comments on earlier drafts to Olympia Bover, Angus Deaton, John Duca, Jim Poterba, seminar participants at the IMF and Oxford, and to two referees. We are grateful for data discussions to Michael Kock, Danie Meyer, Coen Pretorius, Johan Prinsloo, and Johan van den Heever of the South African Reserve Bank. The views and opinions expressed are those of the authors alone. Our South African research can be found at:

Correspondence to: John N. J. Muellbauer, Nuffield College, University of Oxford, New Road, Oxford OX1 1NF, UK (


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.