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ARDL Modelling Approach to Testing the Financial Liberalisation Hypothesis

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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.

Suggested Citation

  • Shrestha, Min B. & Chowdhury, Khorshed, 2005. "ARDL Modelling Approach to Testing the Financial Liberalisation Hypothesis," Economics Working Papers wp05-15, School of Economics, University of Wollongong, NSW, Australia.
    • Handle: RePEc:uow:depec1:wp05-15
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    Keywords

    Financial Liberalisation; Interest Rate Effects; Unit Roots; Cointegration; ARDL Modelling;
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