•  
  •  
 

Economic and Financial Review

Publisher

Research Department, Central Bank of Nigeria

Keywords

Commercial bank deposits, Interest rate elasticity, Financial liberalization, Nigeria

Abstract

The Nigerian government deregulated the financial market in 1987 in line with the McKinnon-Shaw financial liberalization paradigm. However, the subsequent policy reversal after the introduction of the structural adjustment programme has made the effect of interest rate on aggregate commercial bank deposits (CBD) mobilized unclear. This study is based on the pioneering work of Egboro (2004) who initially examined the appropriateness of these policy summersaults with data ending in 1999. However, in this present study we re-estimated an interest elasticity model of commercial bank deposits in Nigeria by employing more recent data that captured subsequent changes in the nation’s financial landscape. The econometric technique applied is the two-stage least squares (2SLS) regression method given that the system of simultaneous equations is over-identified. The Statistical Bulletin of the Central Bank of Nigeria constitutes the source of data. Inter alia, the findings indicate that there is an inverse and statistically significant relationship between CBD and deposit interest rates. This relationship is inelastic in the short-run but elastic in the long-run. One of the important implications of the study is that the McKinnon-Shaw financial liberalization paradigm for less developed countries does not hold in Nigeria. Therefore, it may be concluded that there is presently no scope to use the lure of higher deposit rates to significantly stimulate increased commercial bank deposits in Nigeria.

Issue

50

Volume

1

Recommended Citation

Eborieme, M.I., & Egboro, E.M. (2012). Estimation of Interest Elasticity Model for Aggregate Commercial Bank Deposits in Nigeria (1986 - 2008). Economic and Financial Review, 50(1), 59-113.

Share

COinS
 
 

To view the content in your browser, please download Adobe Reader or, alternately,
you may Download the file to your hard drive.

NOTE: The latest versions of Adobe Reader do not support viewing PDF files within Firefox on Mac OS and if you are using a modern (Intel) Mac, there is no official plugin for viewing PDF files within the browser window.