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2018 | 107 | 224-232
Article title

Interest rate dynamics on savings: Evidence from Sri Lanka

Content
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Languages of publication
EN
Abstracts
EN
Economists believe the interest rate is an interim agent for savings, which promotes the people to lose their present consumption continuously. So, this study also assumed that there was a relationship between the interest rate and savings. Based on that, the objective of this study was to explore the interest rate dynamics on savings in Sri Lank over the period of 1977 to 2017. In this study annual time series data for the following variables: interest rate, savings, and gross domestic product were used, and the Johansen and Juselius cointegration technique was employed to test the cointegration relationship between the variables. In this study, interest rate was considered as key independent variable and savings was dependent variable. Both Augmented Dickey-Fuller (ADF) and Kwiatkowski – Phillips – Schmidt – Shin tests were employed to test the stationarity of the variables. In terms of these tests, all variable were stationary at first difference level. Furthermore, interest rate and savings had the long run relationship and there was short-run causality between interest rate and savings which was confirmed by the results of Vector Error Correction model (VECM). Therefore, the interest rate had long - run and short - run relationship on the savings in Sri Lanka. Finally, this study recommends the policy makers should consider interest rate friendly policy to boost the savings in Sri Lanka.
Year
Volume
107
Pages
224-232
Physical description
Contributors
  • Department of Divisional Administration, Ministry of Home Affairs, Sri Lanka
References
  • [1] Aizenman, J., Y.-W. Cheung, and H. Ito . 2017. The Interest Rate Effect on Private Saving: Alternative Perspectives. ADBI Working Paper 715. Tokyo: Asian Development Bank Institute.
  • [2] Athukorala, P.C., 1998. Interest rates, saving and investment: Evidence from India. Oxford Development Studies, 26(2), pp. 153-169.
  • [3] Chen, C.H., 2002. Interest rates, savings and income in the Chinese economy. Journal of Economic Studies, 29(1), pp.59-74.
  • [4] Chinyere, U.C., 2015. Impact of Interest Rate on Savings on The Nigeria’s Economy (1981-2013). Journal of Policy and Development Studies, 9(3), pp. 73-82.
  • [5] Hashim, D.B., Pin, F.B. and Isa, M.Y.B.M., 2017. Factors Influencing Savings Rate in Malaysia. International Journal of Economics and Finance, 9(6), p. 52.
  • [6] Imoughele, L.E. and Ismaila, M., 2014. An Econometric Analysis of the Determinants of Private Domestic Savings in Nigeria (1981-2012). International Journal of Humanities and Social Science, 4(5), pp. 12-21.
  • [7] Khan, I.H., Khilji, B.A. and Abbas, G., 2014. Relationship between Interest Rate and Household’s Savings in Pakistan. International Journal of Innovation and Scientific Research, 12(1), pp. 295-308.
  • [8] Onwumere, J.U.J., Okore, O.A. and Ibe, I.G., 2012. The impact of interest rate liberalization on savings and investment: Evidence from Nigeria. Research Journal of Finance and Accounting, 3(10), pp. 130-136.
  • [9] Ostry, J.D. and Reinhart, C.M., 1995. Saving and the real interest rate in developing countries. Finance and Development, 32(4), p. 16.
Document Type
short_communication
Publication order reference
Identifiers
YADDA identifier
bwmeta1.element.psjd-27201f7b-b6f7-4026-92a9-cc07ceb24e4e
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