It is a stylised fact that financial 'repression' retards economic growth. Hence, financial liberalization is advocated to remove the stranglehold on the economy. Financial liberalization policy argues that deregulation of interest rate would result in 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 examines the financial liberalization 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.
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Document Type: Research Article
Central Office, Nepal Rastra Bank (the Central Bank of Nepal), Kathmandu, Nepal
Economics Discipline, School of Economics and Information Systems, University of Wollongong, Northfields Avenue, New South Wales 2522, Australia
Publication date: 01 December 2007
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