Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria

Uduak Michael Ekong; Christiana Uduak Ekong

doi:doi:10.11648/j.ijes.20170102.11

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Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria

Uduak Michael Ekong, Christiana Uduak Ekong

Published in International Journal of European Studies (Volume 1, Issue 2)

Received: 10 March 2017 Accepted: 12 April 2017 Published: 20 June 2017

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Abstract

The study investigated the Consumption-Interest rate Euler relationship for Nigeria in the periods 1980 to 2015. Applying commonly used vector autoregression (VAR) techniques on annual data obtained for the country, the study found that there exists the Consumption-Interest rate Euler relationship for Nigeria. However, our finding refutes the general assertion of theorist that the substitution effect is always larger (and more workable) in the Euler relationship than the income effect. Our results show that the consumption Euler equation for Nigeria is consumption-driven, an indication that income effect may be more workable in Nigeria thus crowding out the substitution effect. This was further supported by a uni-directional causality that runs through consumption to interest rate. We recommend, among other things, interest rate policy framework that is flexible to economic needs of the region and motivates saving-dissaving culture of the people and consumptions patterns that is financed by cashless financial products.

Published in	International Journal of European Studies (Volume 1, Issue 2)
DOI	10.11648/j.ijes.20170102.11
Page(s)	46-55
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2017. Published by Science Publishing Group

Keywords

Consumption, Real Interest Rate, Inflation, VAR, Nigeria

References

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[3]	Audu, N. P. (2014). Consumption Dynamics in rural Nigeria: The Experience of Bayelsa State, Journal of Economics and Sustainable Development, 5 (20), 59-69.
[4]	Bjørnland, H. C. (2000). VAR Models in Macroeconomic Research, Statistics Norway Research Department, available online at https://www.ssb.no/a/histstat/doc/doc_200014.pdf, 17.11.2016.
[5]	Campbell, J. Y. and Mankiw, N. G. (1989). Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence, In: Olivier Jean Blanchard and Stanley Fischer (Eds), NBER Macroeconomics Annual 1989, MIT Press, available online at http://www.nber.org/books/blan89-1, 06.08.2015.
[6]	Canzoneri, M. B., Cumby R. E. and Diba, B. T. (2007). Euler Equations and Money Market Interest Rates: A Challenge for Monetary Policy Models, Journal of Monetary Economics, 54, 1863-1881.
[7]	Christensen, L. (2012). "How Are Interest Rates Affecting Household Consumption and Savings?”All Graduate Plan B and other Reports, Utah State University Paper 215, available at http://digitalcommons.usu.edu/gradreports/215
[8]	Cromb, R and Fernandez-Corugedo, E. (2004). Long-term interest rates, wealth and consumption, The Bank of England’s working paper series no 243, available online at www.bankofengland.co.uk/wp/index.html, 02.08.2015.
[9]	Domanski, C. (2010). Properties of the Jarque-Bera Test, Acta Universitatis Lodziensis Folia Oeconomica, 235, 75-86.
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[11]	Giles, D. (2014). Some things you should know about the Jarque-Bera Test, http://davegiles.blogspot.com.ng/2014/02/some-things-you-should-know-about.html, 12.09.2016.
[12]	Hansen, H. (1996). The Impact of Interest Rate on Private Consumption in Germany, Economic Research Group of the Deutsche Bundesbank, Discussion Paper 3/96.
[13]	Jappelli T. and Padula, M. (2013). Consumption Growth, the Interest Rate, and Financial Literacy, Centre for Studies in Economics and Finance, Working Paper No 329, University of Naples.
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[15]	Keynes, John Maynard (1936). The General Theory of Employment, Interest, and Money, MacMillan, London.
[16]	Koutsoyiannis, A. (2001). Theory of Econometrics, 2^nd ed. New York, Palgrave, pp 164-168.
[17]	Mutezo A. (2014) Household debt and consumption spending in South Africa: An ARDL-bounds testing approach, Banks and Bank Systems, 9 (4), 74-81.
[18]	Nakagawa, S. and Oshima, K. (2000). Does a Decrease in the Real Interest Rate Actually Stimulate PersonalConsumption? An Empirical Study, Bank of Japan, Working Paper Series 00-2.
[19]	Parker, J. A. (2007). Euler Equations, Paper Prepared for the New Palgrave Dictionary of Economics, available online at http://www.princeton.edu/~jparker, 10.09.2016.
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Uduak Michael Ekong, Christiana Uduak Ekong. (2017). Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria. International Journal of European Studies, 1(2), 46-55. https://doi.org/10.11648/j.ijes.20170102.11

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ACS Style

Uduak Michael Ekong; Christiana Uduak Ekong. Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria. Int. J. Eur. Stud. 2017, 1(2), 46-55. doi: 10.11648/j.ijes.20170102.11

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AMA Style

Uduak Michael Ekong, Christiana Uduak Ekong. Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria. Int J Eur Stud. 2017;1(2):46-55. doi: 10.11648/j.ijes.20170102.11

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@article{10.11648/j.ijes.20170102.11,
  author = {Uduak Michael Ekong and Christiana Uduak Ekong},
  title = {Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria},
  journal = {International Journal of European Studies},
  volume = {1},
  number = {2},
  pages = {46-55},
  doi = {10.11648/j.ijes.20170102.11},
  url = {https://doi.org/10.11648/j.ijes.20170102.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijes.20170102.11},
  abstract = {The study investigated the Consumption-Interest rate Euler relationship for Nigeria in the periods 1980 to 2015. Applying commonly used vector autoregression (VAR) techniques on annual data obtained for the country, the study found that there exists the Consumption-Interest rate Euler relationship for Nigeria. However, our finding refutes the general assertion of theorist that the substitution effect is always larger (and more workable) in the Euler relationship than the income effect. Our results show that the consumption Euler equation for Nigeria is consumption-driven, an indication that income effect may be more workable in Nigeria thus crowding out the substitution effect. This was further supported by a uni-directional causality that runs through consumption to interest rate. We recommend, among other things, interest rate policy framework that is flexible to economic needs of the region and motivates saving-dissaving culture of the people and consumptions patterns that is financed by cashless financial products.},
 year = {2017}
}

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TY  - JOUR
T1  - Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria
AU  - Uduak Michael Ekong
AU  - Christiana Uduak Ekong
Y1  - 2017/06/20
PY  - 2017
N1  - https://doi.org/10.11648/j.ijes.20170102.11
DO  - 10.11648/j.ijes.20170102.11
T2  - International Journal of European Studies
JF  - International Journal of European Studies
JO  - International Journal of European Studies
SP  - 46
EP  - 55
PB  - Science Publishing Group
SN  - 2578-9562
UR  - https://doi.org/10.11648/j.ijes.20170102.11
AB  - The study investigated the Consumption-Interest rate Euler relationship for Nigeria in the periods 1980 to 2015. Applying commonly used vector autoregression (VAR) techniques on annual data obtained for the country, the study found that there exists the Consumption-Interest rate Euler relationship for Nigeria. However, our finding refutes the general assertion of theorist that the substitution effect is always larger (and more workable) in the Euler relationship than the income effect. Our results show that the consumption Euler equation for Nigeria is consumption-driven, an indication that income effect may be more workable in Nigeria thus crowding out the substitution effect. This was further supported by a uni-directional causality that runs through consumption to interest rate. We recommend, among other things, interest rate policy framework that is flexible to economic needs of the region and motivates saving-dissaving culture of the people and consumptions patterns that is financed by cashless financial products.
VL  - 1
IS  - 2
ER  -

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Author Information

Uduak Michael Ekong

Department of Economics, Faculty of Social Sciences University of Uyo, Uyo, Nigeria
Christiana Uduak Ekong

LeMeridien Ibom Hotels and Golf Resort, Uyo, Nigeria

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APA Style

Uduak Michael Ekong, Christiana Uduak Ekong. (2017). Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria. International Journal of European Studies, 1(2), 46-55. https://doi.org/10.11648/j.ijes.20170102.11

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ACS Style

Uduak Michael Ekong; Christiana Uduak Ekong. Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria. Int. J. Eur. Stud. 2017, 1(2), 46-55. doi: 10.11648/j.ijes.20170102.11

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AMA Style

Uduak Michael Ekong, Christiana Uduak Ekong. Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria. Int J Eur Stud. 2017;1(2):46-55. doi: 10.11648/j.ijes.20170102.11

Copy | Download

@article{10.11648/j.ijes.20170102.11,
  author = {Uduak Michael Ekong and Christiana Uduak Ekong},
  title = {Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria},
  journal = {International Journal of European Studies},
  volume = {1},
  number = {2},
  pages = {46-55},
  doi = {10.11648/j.ijes.20170102.11},
  url = {https://doi.org/10.11648/j.ijes.20170102.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijes.20170102.11},
  abstract = {The study investigated the Consumption-Interest rate Euler relationship for Nigeria in the periods 1980 to 2015. Applying commonly used vector autoregression (VAR) techniques on annual data obtained for the country, the study found that there exists the Consumption-Interest rate Euler relationship for Nigeria. However, our finding refutes the general assertion of theorist that the substitution effect is always larger (and more workable) in the Euler relationship than the income effect. Our results show that the consumption Euler equation for Nigeria is consumption-driven, an indication that income effect may be more workable in Nigeria thus crowding out the substitution effect. This was further supported by a uni-directional causality that runs through consumption to interest rate. We recommend, among other things, interest rate policy framework that is flexible to economic needs of the region and motivates saving-dissaving culture of the people and consumptions patterns that is financed by cashless financial products.},
 year = {2017}
}

Copy | Download

TY  - JOUR
T1  - Consumption Dynamics, Interest Rate Behavior and the Euler Equation: Time Series Evidence for Nigeria
AU  - Uduak Michael Ekong
AU  - Christiana Uduak Ekong
Y1  - 2017/06/20
PY  - 2017
N1  - https://doi.org/10.11648/j.ijes.20170102.11
DO  - 10.11648/j.ijes.20170102.11
T2  - International Journal of European Studies
JF  - International Journal of European Studies
JO  - International Journal of European Studies
SP  - 46
EP  - 55
PB  - Science Publishing Group
SN  - 2578-9562
UR  - https://doi.org/10.11648/j.ijes.20170102.11
AB  - The study investigated the Consumption-Interest rate Euler relationship for Nigeria in the periods 1980 to 2015. Applying commonly used vector autoregression (VAR) techniques on annual data obtained for the country, the study found that there exists the Consumption-Interest rate Euler relationship for Nigeria. However, our finding refutes the general assertion of theorist that the substitution effect is always larger (and more workable) in the Euler relationship than the income effect. Our results show that the consumption Euler equation for Nigeria is consumption-driven, an indication that income effect may be more workable in Nigeria thus crowding out the substitution effect. This was further supported by a uni-directional causality that runs through consumption to interest rate. We recommend, among other things, interest rate policy framework that is flexible to economic needs of the region and motivates saving-dissaving culture of the people and consumptions patterns that is financed by cashless financial products.
VL  - 1
IS  - 2
ER  -

Copy | Download