ARDL Modelling Approach to Testing the Financial Liberalisation Hypothesis

Min B. Shrestha () and Khorshed Chowdhury ()
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Khorshed Chowdhury: University of Wollongong, http://www.uow.edu.au/commerce/econ/who/index.html

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: It is a stylised fact that financial "repression" retards economic growth. Hence, financial liberalisation is advocated to remove the stranglehold on the economy. Financial liberalisation policy argues that deregulation of interest rate would result into a higher real interest rate which would lead to increased savings, increased investment and achieve efficiency in financial resource allocation. Past studies have reported inconclusive results regarding the interest rate effects on savings and investment. This paper examines the financial liberalisation hypothesis by employing autoregressive distributed lag (ARDL) modelling approach on Nepalese data. Results show that the real interest rate affects both savings and investment positively.

Keywords: Financial Liberalisation; Interest Rate Effects; Unit Roots; Cointegration; ARDL Modelling (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-mac
Date: 2005
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