IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/75426.html
   My bibliography  Save this paper

Private Consumption in The WAEMU Zone: Does Interest Rate Matter?

Author

Listed:
  • Combey, Adama

Abstract

This paper investigates the effect of interest rates on private consumption in the West African Economic and Monetary Union (WAEMU). After checking for unit root and co-integration, Error Correction Model is specified, and three estimators are performed: Mean Group, Pooled Mean Group and Dynamic Fixed-Effects. Hausman tests indicate that the Dynamic Fixed-Effects estimator is more efficient and consistent than others. Results suggest that there is no statistical evidence, both in short-run and long-run, impact of real and nominal saving interest rates on private consumption in the WAEMU region from 2006 to 2014. These finds imply that neither substitution effect, nor income effect, operate in this zone. However, the paper finds that the growth of private consumption is strongly depends positively in the long-run on the gross national disposable income and the credit to private sector ratio. The long-run income elasticity and semi-elasticity of liquidity constraints are statistically significant and average to 0.92 and 0.0085, respectively. These finds imply that there is a need for more proper financial market development and financial education policies implementation to have negative and significant impact of interest rates on private consumption in the WAEMU zone.

Suggested Citation

  • Combey, Adama, 2016. "Private Consumption in The WAEMU Zone: Does Interest Rate Matter?," MPRA Paper 75426, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:75426
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/75426/3/MPRA_paper_75426.pdf
    File Function: original version
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Franco Modigliani & Shi Larry Cao, 2004. "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 145-170, March.
    2. repec:sbe:breart:v:11:y:1991:i:1:a:3009 is not listed on IDEAS
    3. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    4. Joakim Westerlund, 2007. "Testing for Error Correction in Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(6), pages 709-748, December.
    5. Olivier Blanchard & Francesco Giavazzi, 2006. "Rebalancing Growth in China: A Three-Handed Approach," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 14(4), pages 1-20.
    6. Damiaan Persyn & Joakim Westerlund, 2008. "Error-correction–based cointegration tests for panel data," Stata Journal, StataCorp LP, vol. 8(2), pages 232-241, June.
    7. Reinhart, Carmen & Ostry, Jonathan, 1995. "El ahorro y 1a tasa de interes real en los paises en desarrollo
      [Saving and the Real Interest Rate in Developing Countries]
      ," MPRA Paper 13733, University Library of Munich, Germany.
    8. Christian Bordes & Éric Girardin & Velayoudom Marimoutou, 1995. "Les effets des variations de taux d'intérêt dans le nouvel environnement financier français," Revue Économique, Programme National Persée, vol. 46(3), pages 635-644.
    9. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    10. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2000. "What Drives Private Saving Across the World?," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 165-181, May.
    11. Loayza, Norman & Schmidt-Hebbel, Klaus & Serven, Luis, 2000. "What drives private saving around the world?," Policy Research Working Paper Series 2309, The World Bank.
    12. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    13. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    14. Giovannini, Alberto, 1985. "Saving and the real interest rate in LDCs," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 197-217, August.
    15. Mikesell, Raymond F & Zinser, James E, 1973. "The Nature of the Savings Function in Developing Countries: A Survey of the Theoretical and Empirical Literature," Journal of Economic Literature, American Economic Association, vol. 11(1), pages 1-26, March.
    16. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
    17. Khatkhate, Deena R., 1988. "Assessing the impact of interest rates in less developed countries," World Development, Elsevier, vol. 16(5), pages 577-588, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adama Combey & Apelete Togbenou, 2017. "The Bank Sector Performance and Macroeconomics Environment: Empirical Evidence in Togo," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(2), pages 180-188, February.

    More about this item

    Keywords

    The views expressed in this paper are those of the author and should not be attributed to the Central Bank of West African States.;

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F15 - International Economics - - Trade - - - Economic Integration

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:75426. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.