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The Effects of Interest and Inflation Rates on Consumption Expenditure: Application of Consumer Spending Model

Author

Listed:
  • Charles O. Manasseh

    (Department of Economics, Coal City University Enugu, South-East, Nigeria, Nigeria,)

  • Felicia C. Abada

    (School of General Studies, Social Science Units, University of Nigeria Nsukka, Nigeria,)

  • Jonathan E. Ogbuabor

    (Department of Economics, University of Nigeria Nsukka, Nigeria,)

  • Josaphat U. J. Onwumere

    (Department of Banking & Finance, University of Nigeria, Enugu Campus, Nigeria,)

  • Chinasa E. Urama

    (Department of Economics, University of Nigeria Nsukka, Nigeria,)

  • Okoro E. Okoro

    (Department of Banking & Finance, University of Nigeria, Enugu Campus, Nigeria.)

Abstract

Using modified consumer spending model and data that span the period of 1981-2011, the study examines the effects of interest and inflation rates (proxy - consumer price index) on Consumer Spending. The study extended its investigation into the causal relationship between consumer spending (proxy; private consumption expenditure), interest and inflation rates using granger causality Wald test, so as to ascertain if consumer spending can be use to predict future interest and inflation rates in the economy. The findings suggest that all explanatory variables account for approximately 93.38 percent variation in consumer spending, indicating interest and inflation rates and other control variables such as per capita income (PCI), indirect tax (INDTAX) and savings (SAV) as important determinants of private consumption expenditure in Nigeria. The results on the granger causality indicated that future interest and inflation rates cannot be predicted using private consumption expenditure. Therefore, based on these findings, we recommend expansionary fiscal and monetary policies to influence the level of aggregate demand in the economy.

Suggested Citation

  • Charles O. Manasseh & Felicia C. Abada & Jonathan E. Ogbuabor & Josaphat U. J. Onwumere & Chinasa E. Urama & Okoro E. Okoro, 2018. "The Effects of Interest and Inflation Rates on Consumption Expenditure: Application of Consumer Spending Model," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 32-38.
    • Handle: RePEc:eco:journ1:2018-04-5
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    References listed on IDEAS

    as
    1. Mthuli Ncube & Eliphas Ndou, 2013. "Monetary Policy Transmission, House Prices and Consumption," Palgrave Macmillan Books, in: Monetary Policy and the Economy in South Africa, chapter 4, pages 43-64, Palgrave Macmillan.
    2. Fisher, Irving, 1907. "The Rate of Interest," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number fisher1907.
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    Cited by:

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    2. Prasada, Imade Yoga & Nugroho, Agus Dwi & Lakner, Zoltan, 2022. "Impact of the FLEGT license on Indonesian plywood competitiveness in the European Union," Forest Policy and Economics, Elsevier, vol. 144(C).
    3. Saurabh Pratap & Sunil Kumar Jauhar & Yash Daultani & Sanjoy Kumar Paul, 2023. "Benchmarking sustainable E‐commerce enterprises based on evolving customer expectations amidst COVID‐19 pandemic," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 736-752, January.

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    More about this item

    Keywords

    Consumer Spending; Inflation Rate; Interest Rate; Granger Causality.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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