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Real deposit rate and credit supply nexus in ECOWAS

Author

Listed:
  • Bosede Ngozi Adeleye

    (Covenant University
    Covenant University
    Regional Centre of Expertise (RCE) Ogun)

  • Michael Adusei

    (Kwame Nkrumah University of Science and Technology)

  • Olayinka Olohunlana

    (University of Lagos)

  • Opeyemi Akinyemi-Babajide

    (Covenant University
    Covenant University)

  • Arumugam Sankaran

    (Pondicherry Central University)

  • Abdul Jamal

    (The New College)

Abstract

The relationship between real deposit rate and credit supply is interrogated with panel data (1980–2015) from ten Economic Community of West African States (ECOWAS) using dynamic common correlated effects mean group (DCCE-MG) and pooled mean group (PMG) estimators. The results show that real deposit rate has a linear positive long-run impact on credit supply for the full and sub-samples of Communauté Financière d'Afrique (CFA) and non-CFA franc countries, while at country levels, the relationship is mixed with varying signs. Similarly, the Dumitrescu–Hurlin non-causality (2012) test shows that real deposit rate Granger-causes credit supply in the long run. Overall, the findings support the McKinnon (Money and capital in economic development, 1973) and Shaw (Financial deepening in economic development, 1973) hypothesis that interest rate is an essential ingredient in the intermediation role of the financial system and suggests that depositors are incentivised to give up present consumption by saving at high deposit rates.

Suggested Citation

  • Bosede Ngozi Adeleye & Michael Adusei & Olayinka Olohunlana & Opeyemi Akinyemi-Babajide & Arumugam Sankaran & Abdul Jamal, 2022. "Real deposit rate and credit supply nexus in ECOWAS," SN Business & Economics, Springer, vol. 2(2), pages 1-24, February.
    • Handle: RePEc:spr:snbeco:v:2:y:2022:i:2:d:10.1007_s43546-021-00194-y
    DOI: 10.1007/s43546-021-00194-y
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    More about this item

    Keywords

    Domestic credit; Deposit interest rate; Dynamic common correlated effects; Pooled mean group;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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