The Impact of Deposit Interest Rate on Gross Savings in Malaysia

Ng, Bryan Xian Jhun (2018) The Impact of Deposit Interest Rate on Gross Savings in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

This paper investigates the impact of deposit interest rate on gross saving in Malaysia, as well as other variables such as gross national income per capita, old age dependency ratio and young age dependency ratio. A time series analysis was carried out to determine the impact of the above mentioned independent variables on the dependent variable. Unit root test was conducted using the Augmented-Dickey Fuller test, Phillips-Perron test as well as Kwiatkowski-Phillips-Schmidt-Shin test. All variables are stationary at 1st difference. The Johansen and Joselius Cointegration Test was carried out, and there were at least two cointegrating vectors in the model. The Vector Error Correction Model shows all variables carried their expected signs and are statistically significant, except gross national income per capita, who unexpectedly has a negative impact on saving, and statistically insignificant as well. Granger Causality test was also carried out, and there is a unidirectional causality running from deposit interest rate to gross saving. It was concluded that this model does not faced the econometric problem of autocorrelation. There is also no structural break in the model, and the model was correctly specified. The model is normally distributed. The finding of this research has answered the main objectives of this research, whereby there is both short-run and long-run relationship between deposit interest rate and domestic saving, and that deposit interest rate granger-causes domestic saving. Both old age dependency ratio and young age dependency ratio has a negative impact on domestic saving in the long-run. Gross national income does not statistically impact domestic saving.