The Effect of Interest Rate on Deposit on Household Consumption in Ghana (1970 – 2009)

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This paper presents an econometric model for household consumption in Ghana with the aim of highlighting the effect of interest rate on deposit on household consumption; the paper also looks at others macroeconomics variables like inflation rate and GDP per Capita effect on household consumption. This research is based on annual data covering period from 1970 to 2009 which was a secondary data. Phillips-Perron (PP) test was employed to find the stationarity status of the variables using Stata. Bound test was used to test for cointegration existence among these variables with the use of Microfit 5.1. The long-run model estimates the relationship between household consumption and interest rate on deposit, inflation rate and GDP per Capita, results show that inflation rate has strong influence on household consumption in the long run and the only variable significant in the long run. In the short-run model, household consumption in Ghana seems to adjust slowly to equilibrium levels in the current period, from disequilibrium experienced in the previous period. The long run and short run coefficients were obtained with the help of Microfit 5.1. The model was also forecast to find its predictive power and the result showed was good. Base on the findings of the study appropriate policy recommendations were made.
A thesis submitted to the Department of Economics, Kwame Nkrumah University of Science and Technology, in partial fulfillment of the requirements for the award of Master of Philosophy Degree in Economics.
Household Consumption, GDP per Capita, interest rate on deposit, cointegration analysis and inflation rate.