What Drives Private Saving in Botswana?

Private saving is a very important factor in bringing economic development, its working or efficiency is determined by different socio economic and political factors. In Ethiopia, private saving does not have a deep-rooted history because of frequent policy changes following the changes of government. The objective of this paper is to analyse the determinants of private saving in Ethiopia and also to check the long run or short run impact of real per capita GDP, real deposit interest rate, age dependency ratio, inflation rate and number of bank branches on private savings using time series annual data from 1978 to 2018. The research methodology employed are tests such as testing for stationery (unit root test) and co-integration test, rank of co-integration determined by using ARDL (Autoregressive- Distributed Lag) to characterize long-run and the short-run relationship between private saving and independent variables. The model is estimated by using Ordinary Least Square (OLS) and/or E-Views 10 also offered a specialized estimator for handling ARDL model. The estimated results revealed that real per capita GDP, real deposit interest rate, age dependency ratio and number of bank branches have found to be statistically significant and positive effect (but real per capita GDP negative in the short run) on private savings while inflation rate is found non-significant and negative effect on private savings in Ethiopia both in the long and short run periods in the study period. Based on the result, the researcher concluded that level of real per capita GDP and number of bank branches is found to be important variable and have very significant impact on private savings. Finally, the study recommended that the national level policy makers or decision makers has to take measure to improve income levels of society and special attention to increases financial access throughout the country by further expanding bank branches or other financial institutions and their services to increase private savings. Keywords : Determinants of private savings, Economic growth, ARDL, co-integration, Ethiopia DOI: 10.7176/JPID/60-01 Publication date: July 31 st 2021

Lowering the policy interest rate could stimulate consumption and investment while discouraging people from saving. However, such a move may also prompt people to save more to compensate for the low rate of return. Using the data of 135 countries from 1995 to 2014, we show that a low interest rate environment can yield different effects on private saving under different economic environments. The real interest rate affects private saving negatively if output volatility, old-age dependency, or financial development is above a certain threshold. Depending on a country’s specific economic circumstances, these effects are significant for the economy — a four-percentage point decline in the real interest rate, which is approximately the same as one standard deviation for China, would lead to a 1.52 percentage point increase in the Chinese private saving rate. Further, when the real interest rate is below 1.1%, greater output volatility would lead to higher private saving in developing countries.

The study investigated the impact of macroeconomic variables on private investment in Nigeria for the period 1990 to 2016. To achieve these objectives, the study tests for the study modeled private equity and private real investment as the function exchange rate, financial sector development, and interest rate, openness of the economy, real gross domestic product, inflation rate and broad money supply. Ordinary least square method of data analysis was used.
 From model one, the study found that real gross domestic product have positive but insignificant effect, openness of the economy have positive and insignificant effect, interest rate have positive and significant effect, financial deepening have positive and insignificant effect while interest rate, inflation rate and exchange rate have negative effect on private real investment. The coefficient of determination (R2) proved that the independent variables can explain 62 percent variation on private real investment; the f- statistics found that the model is significant while the Durbin Watson statistics proved the presence of serial autocorrelation. The effect of macroeconomic variables on private equity investment was presented in model two. The study found that openness of the economy; real gross domestic products, broad money supply, and interest rate have negative and insignificant effect on private equity investment except openness of the economy with significant effect. Inflation rate, financial sector deepening and exchange rate have positive and insignificant effect on private equity investment except financial deepening with significant effect. The R2 proved that the independent variables can predict 66.9 percent variation on private equity investment. The f- statistics found that the model is significant while the Durbin Watson statistics proved the presence of serial autocorrelation. We conclude that macroeconomic variable have significant effect on private investment in Nigeria. We recommend that interest rate must be able to encourage higher private investment by increasing the real interstate on private savings or household savings so that larger amount of income would be saved to accumulate more capital and hence private investment. Policies should be formulated by investors and government to discourage factors that affect negatively private investment.

The current study observes the link between export levels, GDP growth, gross savings, lending interest rates, and real interest rates. This study's evaluation approach combines an Ordinary Least Squares (OLS), and Arrellano-Bover/Blundell-Bond estimation to observe the connection among export level, GDP growth, gross savings, lending interest rates, and real interest rate as a component of financial liberalization in the case of Kosovo over 12 years from 2009 to 2020. The findings reveal that GDP growth and lending interest rates have a positive impact on the level of export growth. However, as a component of financial liberalization, real interest rates have a negative impact on the level of exports. Whereas econometric analyses revealed that gross savings were insignificant. The negative relationship between the real interest rate and the level of exports represents that real interest rates restricted the financial possibility for businesses to maximize the level of exports throughout the research period. Due to the limited number of observations, this study is limited to analyzing the long-term correlations between the factors that characterize financial liberalization and export progress in the context of Kosovo. To meet the objective of growing exports, policymakers must design policies to enhance the financial system and invest in infrastructure development to encourage the business sector that exports its products or services.

he impact of financial repression on financial depth is one of important issues for monetary authorities. Hence, this study examines the empirical relationship between financial repression and financial depth based on McKinnon-Shaw hypothesis in two set of countries, Including 43 lower middle income and 33 upper middle income countries during 1990 to 2008. Real interest rate and reserve ratio is used to measures financial repression and the method that is used in empirical analysis is Dynamic Panel Data (DPD) technique. The results show that reserve requirement and inflation have the negative and significant effect on financial depth in two set of countries. Also, the results indicate that nominal interest rate and economic development positively affect the level of financial depth. Thus, financial repression is an obstacle to financial depth and increase in nominal interest rate and reduce reserve ratio and inflation is suggested to encourage financial depth in two set of countries.

Financial liberalization, financial sector development and growth: Evidence from Malaysia

Savings and growth are often strongly correlated. Thus, it is important to study the determinants of savings and the direction of causality between savings and growth as these have important implications for development policy. Yet, careful empirical studies on savings behavior are missing for Bangladesh. Thus, in this paper, we estimate the long-run total and private savings functions for Bangladesh using recent time series techniques. We find that the total savings rate is mainly determined by the GDP growth rate, dependency ratio, interest rates and bank density. The private savings rate is also affected by the public savings rate. Further, using the Granger Causality tests, we find that in Bangladesh, there is a bi-directional causality between savings and growth. We also carry out the Forecast Error Variance Decomposition (FEVD) analysis using the VAR framework. The FEVD results confirm the causality results obtained using the Granger causality tests as well as the estimated savings functions.

This paper examines the factors influencing Mexico's private saving rate. Cross-country analysis finds that Mexico's private saving is somewhat higher than could be explained by its fundamentals, but lower than in the average country in the sample. This analysis suggests that Mexico's greater reliance on external saving, its relatively high population dependency ratio, and its less developed financial system have been the main factors holding back private saving. Time-series analysis finds that movements in private saving have not been associated with similar shifts in investment, as changes in public saving and external saving have tended to offset movements in private saving. This is consistent with the direction of causality being from investment to saving and suggests that policy measures should focus on creating conditions favorable to increased investment.

From 1750 until 1950 inflationary expectations, and nominal and real interest rates, remained roughly constant, in the UK at least, while inflation was a function of occasional wars and the vagaries of harvest. After the 1950s there was a strong upwards trend in inflation, inflationary expectations and nominal interest rates (1950–1980), followed by an extraordinary downwards trend in inflation, inflationary expectations and both nominal and real interest rates (1980–2020). The earlier trend can be ascribed to a doomed, but well intentioned, attempt to keep unemployment below its rising Natural Rate, with the monetary regime allowing that to happen. The subsequent downwards trend is ascribed by Goodhart and Pradhan to underlying demography and globalisation factors. Given the expansionary intent of monetary policies, it is hard to claim that such disinflation was a monetary phenomenon. But in that case the forthcoming reversal of the previous demographic and globalisation trends should lead to a revival of inflation and nominal (but not necessarily real) interest rates. But this view is at odds with most current mainstream analysis, even of those who do focus on demography, who generally continue to foresee secular stagnation, ‘lower for longer’. Goodhart and Pradhan outline why they differ from the mainstream. Their view of the future is not encouraging, but it is coherent and plausible.

Inflationary shocks and real output growth in nine Muslim-majority countries: Implications for Islamic banking and finance

Considering the fact that savings are very important for developing countries and that they should be increased, in this study, the effects of macroeconomic variables consisting of economic growth rate, inflation rate, real interest rate and per capita income on private savings for BRICS-T countries, have been examined with the annual data of 1996-2019 period. For this purpose, firstly, the cross-sectional dependency and homogeneity situations between the mentioned countries have been evaluated. Then, the second-generation panel unit root test, the CADF Test, has been applied to test for stagnation. Westerlund (2008) Durbin-H method has been used to determine the long-term cointegration relationship. In the estimation of long-term cointegration coefficients, for inter-unit correlation and heterogeneity, the common correlated effects – CCE estimator proposed by Pesaran (2006) has been used. Although the findings differ for countries, they reveal that there are important relationships between macroeconomic variables and savings.

This study examines the effects and relationships between Malaysia’s economic growth and selected variables which are oil price volatility, stock price, real exchange rate and real interest rate. Using time-series data methodology, the study employs unit root test using Augmented Dickey–Fuller (ADF) and Phillips–Perron (PP), Auto-Regressive Distribution Lag (ARDL) model supplemented by Bounds F-Testing, Johansen-Julius Co-integration test and Granger causality test. The long-run equation derived from ARDL shows that there are positive relationships for stock price and real exchange rate whilst there are negative relationships between oil price volatility and real interest rate. Furthermore, Granger causality test shows that only stock price and real interest rates have an impact on Malaysia’s gross domestic product (GDP) in the short run. Finally, sound policy recommendations are suggested, in particular, to address oil price volatility in a forward-looking manner as well as monetary-friendly measures to further support Malaysia’s economic growth.

What is the future of social systems in OECD countries ? In our view, the answer belongs to the realm of politics. We evaluate how political constraints shape the social security system in six countries - France, Germany, Italy, Spain, the UK and the US - under population aging. Two main aspects of the aging process are relevant to the analysis. First, the increase in the dependency ratio - the ratio of retirees of workers - reduces the average profitability of the unfunded social security system, thereby inducing the agents to reduce the size of the system by substituting their claims towards future pensions with more private savings. Second, an aging electorate leads to larger systems, since it increases the relevance of pension spending on the policy-makers' agenda. The overall assessment from our simulations is that the political aspect dominates in all countries, albeit with some differences. Spain, the fastest aging country, faces the largest increase in the social security contribution rate. When labor market considerations are introduced, the political effect still dominates, but it is less sizeable. Country specific characteristics (not accounted for in our simulations), such as the degree of redistribution in the pension system and the existence of family ties in the society, may also matter. Our simulations deliver a strong policy implication: an increase in the effective retirement age always decreases the size of the system chosen by the voters, while often increasing its generosity. Finally, delegation of pension policy to the EC may reduce political accountability and hence help to reform the systems.

Chapter 2 delves into the historical development of inflation (the increase in prices of goods and services) and real interest rates, which are nominal interest rates adjusted for inflation. The chapter highlights that, similar to nominal interest rates, inflation rates have also decreased since the early 1980s. It demonstrates that nominal interest rates have fallen more than inflation rates over the past four decades, leading to a decline in real interest rates. The chapter contrasts the changes in real interest rates during 1980–2020 with earlier periods, revealing that while nominal interest rates were at historical lows just before the pandemic, real interest rates were low but not at their lowest level ever.

This paper sheds light on a narrow but crucial question in finance: What should be the parameters of a model of the short-term real interest rate? Although models for the nominal interest rate are well studied and estimated, dynamics of the real interest rate are rarely explored. Simple ad hoc processes for the short-term real interest rate are usually assumed as building blocks for more sophisticated models. In this paper, parameters of the real interest rate model are estimated in the broad class of single-factor interest rate diffusion processes on U.S. monthly data. It is shown that the elasticity of interest rate volatility—the relationship between the volatility of changes in the interest rate and its level—plays a crucial role in explaining real interest rate dynamics. The empirical estimates of the elasticity of the real interest rate volatility are found to be about 0.5, much lower than that of the nominal interest rate. These estimates show that the square root process, as in the Cox-Ingersoll-Ross model, provides a good characterization of the short-term real interest rate process.