IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2018-04-5.html
   My bibliography  Save this article

The Effects of Interest and Inflation Rates on Consumption Expenditure: Application of Consumer Spending Model

Author

Listed:
  • Charles O. Manasseh

    (Department of Economics, Coal City University Enugu, South-East, Nigeria, Nigeria,)

  • Felicia C. Abada

    (School of General Studies, Social Science Units, University of Nigeria Nsukka, Nigeria,)

  • Jonathan E. Ogbuabor

    (Department of Economics, University of Nigeria Nsukka, Nigeria,)

  • Josaphat U. J. Onwumere

    (Department of Banking & Finance, University of Nigeria, Enugu Campus, Nigeria,)

  • Chinasa E. Urama

    (Department of Economics, University of Nigeria Nsukka, Nigeria,)

  • Okoro E. Okoro

    (Department of Banking & Finance, University of Nigeria, Enugu Campus, Nigeria.)

Abstract

Using modified consumer spending model and data that span the period of 1981-2011, the study examines the effects of interest and inflation rates (proxy - consumer price index) on Consumer Spending. The study extended its investigation into the causal relationship between consumer spending (proxy; private consumption expenditure), interest and inflation rates using granger causality Wald test, so as to ascertain if consumer spending can be use to predict future interest and inflation rates in the economy. The findings suggest that all explanatory variables account for approximately 93.38 percent variation in consumer spending, indicating interest and inflation rates and other control variables such as per capita income (PCI), indirect tax (INDTAX) and savings (SAV) as important determinants of private consumption expenditure in Nigeria. The results on the granger causality indicated that future interest and inflation rates cannot be predicted using private consumption expenditure. Therefore, based on these findings, we recommend expansionary fiscal and monetary policies to influence the level of aggregate demand in the economy.

Suggested Citation

  • Charles O. Manasseh & Felicia C. Abada & Jonathan E. Ogbuabor & Josaphat U. J. Onwumere & Chinasa E. Urama & Okoro E. Okoro, 2018. "The Effects of Interest and Inflation Rates on Consumption Expenditure: Application of Consumer Spending Model," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 32-38.
    • Handle: RePEc:eco:journ1:2018-04-5
    as

    Download full text from publisher

    File URL: https://www.econjournals.com/index.php/ijefi/article/download/5084/pdf
    Download Restriction: no
    File URL: https://www.econjournals.com/index.php/ijefi/article/view/5084/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fisher, Irving, 1907. "The Rate of Interest," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number fisher1907.
    2. Mthuli Ncube & Eliphas Ndou, 2013. "Monetary Policy Transmission, House Prices and Consumption," Palgrave Macmillan Books, in: Monetary Policy and the Economy in South Africa, chapter 4, pages 43-64, Palgrave Macmillan.
    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. Mustafa Kasim & Bentouir Naima, 2018. "The Relationship Between Inflation Rate and Nominal Interest Rate in Bolivarian Republic Of Venezuela: Revisiting Fisher’s Hypothesis," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 7(4), pages 214-224, November.
    2. Prasada, Imade Yoga & Nugroho, Agus Dwi & Lakner, Zoltan, 2022. "Impact of the FLEGT license on Indonesian plywood competitiveness in the European Union," Forest Policy and Economics, Elsevier, vol. 144(C).
    3. Saurabh Pratap & Sunil Kumar Jauhar & Yash Daultani & Sanjoy Kumar Paul, 2023. "Benchmarking sustainable E‐commerce enterprises based on evolving customer expectations amidst COVID‐19 pandemic," Business Strategy and the Environment, Wiley Blackwell, vol. 32(1), pages 736-752, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Christian Johnson & George G Kaufman, 2007. "Un banco, con cualquier otro nombre…," Boletín, CEMLA, vol. 0(4), pages 185-199, Octubre-d.
    2. Irving Fisher Committee, 2003. "Abstracts of papers to be presented at the 54th ISI Session, Berlin, August 2003," IFC Bulletins, Bank for International Settlements, number 15.
    3. Navarrete, Eduardo, 2012. "Modeling optimal pine stands harvest under stochastic wood stock and price in Chile," Forest Policy and Economics, Elsevier, vol. 15(C), pages 54-59.
    4. Hakan Berument & Nildag Basak Ceylan & Hasan Olgun, 2007. "Inflation uncertainty and interest rates: is the Fisher relation universal?," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 53-68.
    5. Mabid Ali Al-Jarhi, 2020. "Reforming Islamic Finance إصلاح المالية الإسلامية," Journal of King Abdulaziz University: Islamic Economics, King Abdulaziz University, Islamic Economics Institute., vol. 33(2), pages 101-107, July.
    6. Yunhao Chen & Xiaoquan Jiang & Bong-Soo Lee, 2015. "Long-Term Evidence on the Effect of Aggregate Earnings on Prices," Financial Management, Financial Management Association International, vol. 44(2), pages 323-351, June.
    7. James Tobin, 2005. "Fisher's Introductory Text," American Journal of Economics and Sociology, Wiley Blackwell, vol. 64(1), pages 201-205, January.
    8. Olivier Rousse, 2008. "On the bias of yield-based capital budgeting methods," Economics Bulletin, AccessEcon, vol. 7(9), pages 1-8.
    9. Lee, Shun-Chung, 2011. "Using real option analysis for highly uncertain technology investments: The case of wind energy technology," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4443-4450.
    10. Mitra, Tapan & Sorger, Gerhard, 2013. "On Ramseyʼs conjecture," Journal of Economic Theory, Elsevier, vol. 148(5), pages 1953-1976.
    11. Robert W. Dimand, 2012. "The Roots of the Present are in the Past: The Relation of Postwar Developments in Macroeconomics to Interwar Business Cycle and Monetary Theory," Chapters, in: Thomas Cate (ed.), Keynes’s General Theory, chapter 5, Edward Elgar Publishing.
    12. Gino Favero & Gherardo Piacitelli, 2024. "Irr and equivalence of cash-flow streams, loans, and portfolios of bonds," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 47(2), pages 379-399, December.
    13. Fulli-Lemaire, Nicolas, 2013. "Alternative inflation hedging strategies for ALM," MPRA Paper 43755, University Library of Munich, Germany.
    14. Gylfason, Thorvaldur & Tómasson, Helgi & Zoega, Gylfi, 2016. "Around the world with Irving Fisher," The North American Journal of Economics and Finance, Elsevier, vol. 36(C), pages 232-243.
    15. Siven, Claes-Henric, 2000. "Analytical Foundations of Erik Lindahl's Monetary Analysis, 1924-30," Research Papers in Economics 2000:14, Stockholm University, Department of Economics.
    16. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    17. Lee, Shun-Chung & Shih, Li-Hsing, 2010. "Renewable energy policy evaluation using real option model -- The case of Taiwan," Energy Economics, Elsevier, vol. 32(Supplemen), pages 67-78, September.
    18. Janette Rutterford, 2012. "Valuing Equities in the UK and the US: Fashions and Trends," Chapters, in: Geoffrey Poitras (ed.), Handbook of Research on Stock Market Globalization, chapter 4, Edward Elgar Publishing.
    19. Rangan Gupta & Charl Jooste & Kanyane Matlou, 2014. "A time-varying approach to analysing fiscal policy and asset prices in South Africa," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 6(1), pages 46-63, April.
    20. Schefold, Bertram, 2023. "The rarity of reswitching explained," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 128-150.

    More about this item

    Keywords

    Consumer Spending; Inflation Rate; Interest Rate; Granger Causality.;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

    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:eco:journ1:2018-04-5. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.