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Does Interest Rate Really Stimulate Savings in Nigeria?

Author

Listed:
  • Babalola Abdurrauf

    (Ph.D., Department of Economics, Faculty of Management Sciences, Al-Hikmah University, Ilorin, Nigeria; e-mail: abdclement@yahoo.com)

  • Abdul Abiodun Ibrahim

    (M.Sc., Department of Economics, Faculty of Social Sciences, University of Abuja, FCT, Nigeria)

Abstract

Research background: Interest rate as a stimulus to savings has been discussed by many scholars while ancient scholars kicked against the collection of usury (interest). Developing countries like Nigeria may not be stimulated with the rate of interest because of its insignificant level, which is presently causing financial exclusion against the opponents of interest. Purpose: This study examines whether interest rate really stimulates savings in Nigeria. Research methodology: The study covers the post-liberalization period between 1987 and 2021. The research employs the Vector Autoregressive/Error Correction techniques to analyze the data and make statistical inferences. Results: The results of the show that interest rate (deposit rate) has a positively non-significant effect on savings in Nigeria. On the contrary, the Treasury bill rate, Insecurity and Inflation rate have a significant impact on savings in Nigeria. Novelty: No existing study has been made to investigate if the interest rate (deposit rate) has the ability to stimulate domestic savings in the Nigerian economy. None has included the Insecurity index and none has used the vector autoregressive error correction tools to analyze this inquiry so “Does Interest Rate Really Stimulate Savings in Nigeria?

Suggested Citation

  • Babalola Abdurrauf & Abdul Abiodun Ibrahim, 2022. "Does Interest Rate Really Stimulate Savings in Nigeria?," Folia Oeconomica Stetinensia, Sciendo, vol. 22(2), pages 18-37, December.
    • Handle: RePEc:vrs:foeste:v:22:y:2022:i:2:p:18-37:n:14
    DOI: 10.2478/foli-2022-0017
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    References listed on IDEAS

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    1. Carlo A. Favero, 2009. "The Econometrics of Monetary Policy: An Overview," Palgrave Macmillan Books, in: Terence C. Mills & Kerry Patterson (ed.), Palgrave Handbook of Econometrics, chapter 16, pages 821-850, Palgrave Macmillan.
    2. Alogoskoufis, George & Smith, Ron, 1991. "On Error Correction Models: Specification, Interpretation, Estimation," Journal of Economic Surveys, Wiley Blackwell, vol. 5(1), pages 97-128.
    3. Kaddour Hadri & William Mikhail (ed.), 2014. "Econometric Methods and Their Applications in Finance, Macro and Related Fields," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8843, April.
    4. Osuji Obinna, 2020. "Impact of Interest Rate Deregulation on Investment Growth in Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 10(2), pages 170-180.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    deposit rate; interest rate; insecurity; savings; treasury bill;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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