An investigation of the relationship between private consumption expenditure and lending rate in Namibia

The study examines the relationship between private consumption expenditure and lending rate in Namibia, with the aim of highlighting the effect of lending rate as an important factor that determine the private consumption expenditure growth. The study is based on annual data covering the period from 1980 to 2011. The Unrestricted Vector Auto – regression Model (VECM) procedure was adopted. Two proxies for real wealth and real disposable income are used in the study. The results show that real private consumption expenditure in Namibia adjusts fast to changes in nominal lending rate, real wealth and real disposable income and that the effects wear off in the long run. The results also reveals that the real private consumption expenditure in Namibia is significantly explained by the changes in lending rate, income and wealth and the effects confirms with the theories of consumption. Real wealth and real disposable income have a positive impact on real private consumption expenditure, while nominal lending rate has a negative impact. The negative impact realized from the findings shows that in Namibia, the relationship between private consumption expenditure and lending rate depends on the magnitude of the substitution effect. A fall in lending rate by the commercial banks will be an appropriate instrument for stimulating the levels of private consumption expenditure in Namibia. With income and wealth playing a vital role in influencing consumption levels of households, fiscal policies, through its impact on disposable income and wealth, should be considered as effective tools in promoting private consumption expenditure.

Author dc:creator

• Kalumbu, Sakaria A.

• Private consumption

Language dc:language.iso

en

Dc Identifier Other

thesis

OAI identifier oai:identifier

oai:repository.unam.edu.na:11070/785