CAPSTONE PROJECT (PART II) MGT 739 REPORT

(Project Term January-April 2013)

THE EFFECT OF INTEREST RATE ON HOUSEHOLD CONSUMPTION

Submitted by

(Nikhil Aggarwal ) Registration Number: 11111723 (Hiralal Kumar) Registration Number: 11111858 (Supriya Kumari Bajpayee) Registration Number: 11113013

Project Group Number: F13

Under the Guidance of (Mrs. Neha Tikoo)

Lovely faculty of Business and Applied Arts Lovely Professional University, Phagwara January to April, 2013
CERTIFICATION/ THESIS APPROVAL BY FACULTY ADVISOR TO WHOMSOEVER IT MAY CONCERN

Acknowledgements
Many a time we have heard that learning comes from practice. From moving out of classroom education to the real world during Capstone Project We got an opportunity to experience what we had heard. We would like to express our gratitude to Mrs. Neha Tikoo for his valuable guideline, support and encouragement in completing the synopsis. We are very much thankful to our A.O. and the entire staff of the LFBA for providing me such a friendly and co-operative environment.

HIRALAL KUMAR NIKHIL AGRAWAL

(11111858) (11111723)

SUPRIYA KUMARI BAJPAYEE (11113013)

Table of contents:

Chapter 1 Introduction Chapter 2 Literature review Chapter 3 Research methodology Chapter 4 Analysis Chapter 5 Findings References Annexure

7-11 12-17 18-19 20-25 26-28 29-31 32-34

CERTIFICATE

This is to certify that HIRALAL KUMAR (11111858), NIKHIL AGRAWAL (11111723) and SUPRIYA KUMARI BAJPAYEE (11113013) has completed objective formulation of Capstone project titled, THE EFFECT OF INTEREST RATE ON HOUSEHOLD CONSUMPTION under my guidance and supervision. To the best of my knowledge, the present work is the result of their original investigation and study. No part of the capstone has ever been submitted for any other degree at any University. The capstone project is fit for submission and the partial fulfilment of the conditions for the award of .........................

Signature and Name of the Research Supervisor: Designation School Lovely Professional University Phagwara, Punjab. Date :

DECLARATION

I, HIRALAL KUMAR, NIKHIL AGGARWAL and SUPRIYA KUMARI BAJPAYEE students of MBA-3501 under Department of LFBAA of Lovely Professional University, Punjab, hereby declare that all the information furnished in this capstone project report is based on our own intensive research and is genuine. This capstone does not, to the best of my knowledge, contain part of my work which has been submitted for the award of our degree either of this university or any other university without proper citation.

Date : Registration No. 11111858 11111723 11113013

Signature and Name of the student

Abstract
In this paper, an attempt has been made to analyse the the effect of real interest rate on household consumption for which we have taken the data of real interest rate, household consumption and growth of bank deposits of scheduled commercial bank in India. For analysis we have used simple regression to know how real interest rate affects household consumption expenditure. The findings of the study showed that the average real interest rate was 6.162% and there is long run relationship between real interest rate and household consumption in India. The estimated coefficients of correlation further indicate that the real interest rate have a weak correlation with household consumption expenditure. Like wisely the real interest rate affects the growth of bank deposits positively but negligibly.

Chapter1 Introduction

Interest rates are the most closely watched element in the financial market. It drives the decision, whether to lend or borrow, save or invest or choose the available alternative investment opportunities. Interest rates are the primary tool to consider while making investments. Interest rates are the most pervasive elements in the financial world. They affect every nook and cranny of financial markets (Ritter, Silber et al. 1991). The effect of fluctuation in interest rate in the saving or consumption can be represented by a variable. This variable can be either in the form of saving or in the form of consumption. The variable in the form of saving is called interest elasticity of saving. This represents the change in saving by one percent change in interest. The variable in the form of consumption is called interest elasticity of consumption. This interest elasticity of consumption is reciprocal of interest elasticity of saving. There have been a large number in of empirical studies in this topic. However, most of the results do not coincide at a single point. Moreover, in developing countries the result is more contradictory. It is an undeniable truth that the development of an individual economy passes through different economic phases. Sometimes it is booming and sometimes it suffers from recession. In the theories, it may be possible to have only the booming economy but the truth is truth. Theories are based on the assumptions but the practical life has to move with time, in complex environment, and the time is never static. The effect of interest rate on

consumption is a central concern in macroeconomics. Among many issues that are related to inter-temporal substitution, one of the most relevant from today's perspective is whether consumers can be induced to increase consumption by a reduction in interest rate paid on deposits. In this paper we measure the causal effect of interest rate on consumption. This has crucial implications for understanding the timing and effectiveness of the interest rate as a policy instrument that affects consumption, savings and ultimately the growth rate of an economy. Our paper estimates the causal effect of a higher interest rate on household consumption expenditure by exploiting a unique Indian banking legislation and using detailed household consumption expenditure data from the RBI. As of April 2001, the Reserve Bank of India permitted and actively encouraged banks to offer higher interest rates on deposits of senior citizens, We use the regression discontinuity approach to estimate the precise causal effect that the interest rate has on consumption of households. To achieve a higher economic growth there has to be an increased investment both from the public and the private sector. Increased investment both from the public and private sector can take place only when savings are mobilized sufficiently. Savings can be
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increased if real interest rates are positive. In this respect, RBI has adopted interest rate policy for the (i) Mobilization of higher level of savings in the form of bank deposits (ii)Prevention of capital flight to foreign countries (iii) Allocation of resources to productive sectors of the economy, and (iv) Promotion of economic activities particularly industry and trade. For those purpose, interest rates were regulated. In the past when interest rates were controlled, RBI attempted to keep real interest rates positive by making frequent revisions in nominal rates whenever inflation rates were changing. But RBI was unable to appropriately monitor the movements and the real interest rate was moving up and down over time. With this background, the objective of this research is to find out the real interest rate and analyze its movements, find possible factors for these movements, and find the correlation between real interest rates and other important variables.

Terminology:
Interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. Interest rates are fundamental to a capitalist society. Interest rates are normally expressed as a percentage rate over the period of one year.

Real Interest rate is approximately the nominal interest rate minus the inflation rate (Fisher,1911). It is the rate of interest an investor expect to receive after subtracting inflation.

Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. For firms, income generally refers to net-profit: what remains of revenue after expenses have been subtracted. In the field of public economics, it may refer to the accumulation of both monetary and non-monetary consumption ability, the former being used as a proxy for total income.

Household final consumption expenditure (HFCE) is a transaction of the national account's use of income account representing consumer spending. It consists of

the expenditure incurred by resident households on individual consumption goods and services, including those sold at prices that are not economically significant. It also includes various kinds of imputed expenditure of which the imputed rent for services of owneroccupied housing (imputed rents) is generally the most important one. The household sector
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covers not only those living in traditional households, but also those people living in communal establishments, such as retirement homes, boarding houses and prisons. The above given definition of HFCE includes expenditure by resident households on the domestic territory and expenditure by resident households abroad (outbound tourists), but excludes any non-resident households' expenditure on the domestic territory (inbound tourists). From this national definition of consumption expenditure may be distinguished the household final consumption expenditure according to the domestic concept which includes household expenditure made on the domestic territory by residents and inbound tourists, but excludes residents' expenditure made abroad. Household consumer expenditure: The expenditure incurred by a household on domestic consumption during the reference period is the household's consumer expenditure. Expenditure incurred towards productive enterprises of households is excluded from household consumer expenditure. Also excluded are expenditure on purchase and construction of residential land and building, interest payments, insurance premium payments, payments of fines and penalties, and expenditure on gambling including lottery tickets. Money given as remittance, charity, gift, etc. is not consumer expenditure. However, self-consumed produce of own farm or other household enterprise is valued and included in household consumer expenditure. So are goods and services received as payment in kind or free from employer, such as accommodation and medical care, and travelling allowance excluding allowance for business trips. Household size: The size of a household is the total number of persons in the household.

Purpose of study
There are hardly any economic papers which do not talk about the interest rates. Perhaps, interest rates are the most closely watched element in the financial market. Interest rates are the most pervasive elements in the financial world. They affect every nook and cranny of financial markets. (Ritter, Silber et al. 1991). From this citation we can say that how

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important is interest rate in an economy and how it impact on Household consumption when it changes.

Objective
1. To know the effect of change of interest rate on household consumption. 2. To know how consumption and savings are related to interest rate.

Limitations
1. Data taken is for scheduled commercial banks non schedule data is not properly available. 2. Data is taken for 1990 -2010 only recent data of 2011 and 2012 is not available on RBI site. 3. There is lack of time, classes, busy schedule and less members in our group. 4. We depend on the data given by RBI or NSSO and world bank. 5. Exact deposits of all accounts and transactions are not given anywhere.

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Chapter 2 Literature Review

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1. Attanasio and Weber (1993), investigate the effects of aggregation on consumption Euler equations, with particular emphasis on the inter temporal elasticity of substitution. Using British National Accounts data, they estimate an elasticity around 1/3, which is somewhat larger and has a smaller standard error than the Campbell-Mankiw estimate for the U.S. Then AW turn to the British Family Expenditure Survey (FES), which provides a long time series of household-level data. They construct separate time series for the average consumption of all households and of households in three different age cohorts. For all households, the estimated inter temporal elasticity of substitution is around 1/3, as in the aggregate British data. For the young and middle-aged cohorts, the estimated elasticity is roughly twice as large, and for the older cohort, it is fairly small (although not statistically different from the other estimates).

2. Campbell and Mankiw (1989), examined aggregate consumption data, extending Hall's framework to allow for some households who choose consumption based on a "rule of thumb" rather than the lifecycle model. They estimate that these households receive almost half of total income, suggesting that their presence significantly alters the expected dynamics of aggregate consumption. For the traditional lifecycle consumers, Campbell and Mankiw estimate elasticity of substitution between 0 and 0.2. Estimates derived from household data. One of the earliest papers to use cross-sectional variation in interest rates to estimate the inter temporal elasticity of substitution is Shapiro (1984). His estimates are very large, but they have enormous standard errors, so they are simply not informative.

3. Avery and Kennickell's (1991), exploration of the Survey of Consumer Finances shows that among people over age 70, median saving is less than zero (the average person is dissaving) but mean saving is greater than zero (the group as a whole is still accumulating wealth). Bequests may be important for aggregate saving even if most people do not leave significant bequests.

4. Cantor (1989) and Goodman, Luckett and Wilcox (1988),conclude that household likely to experience positive changes in cash flow when interest rates rise. These papers carefully
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examine the responsiveness of different categories of interest payments and receipts to changes in market interest rates.

5. Deaton (1992), argues that if consumption is always close to income for many people, then"the prima facie supposition must be that interest rates are not very important" in determining consumption and saving. But consumption is not that close to income for people who are doing the saving in the economy, so there is no reason to presume that the savers' decisions are unaffected by interest rates or other factors.

6. Hall (1988), examines the behaviour of aggregate consumer spending, using different time periods and different measures of the expected rate of return. He finds no evidence of a significant positive elasticity of substitution. Hall notes that his results are not surprising given that the U.S. has experienced large changes in the interest rate over time but only small changes in the growth rate of aggregate consumption. Together, these facts suggest that consumption is not very responsive to changes in the interest rate and thus that the inter temporal elasticity of substitution is small.

7. Feldstein (1994), argues that Income may also be correlated with pre-tax rates of return,high-income households may earn a higher pre-tax return on their investments than other households, and thus may have a higher after-tax return despite their higher tax rates.

8. Bernheim and Scholz (1993), suggest an alternative utility function for which the interest elasticity of saving is positively correlated with income. They show that if utility is a function of actual consumption less some subsistence level of consumption, the "effective" interest elasticity of saving increases with consumption.

9. Fry (1995) The Economic literature on savings provides a long list of factors affecting the saving rates. Study have found ambiguous effect of increase in real interest rate on savings because of a positive substitution effect towards future consumption and a negative income effect due to increased real returns on saved wealth. has found small but positive interest rate elasticity of savings to be insignificantly related to real interest rates.

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10. Bhattarai and kafle,(2011).The influence of real interest rate on savings depends on the relative strength of the offsetting substitution and income effect A rise in the interest rate of return may increase savings by making future consumption cheaper relative to current consumption (substitution effect).At the same time higher real interest rate may reduce the savings necessary to purchase a given amount of future consumption (income effect). Given the theoretical ambiguities, whether or not saving behaviour is interest elastic is a matter of country specific empirical analysis

11. Shrestha,(2010).there are number of studies which suggested for significantly positive to significantly negative coefficients of real interest rate. It is also important to note that the real interest rate have a positive influence on the private savings and can be taken as an important policy variable in Nepal.

12. Arrieta,(1988) identified activities variable such as the real interest rates and some measures of capital inflows ( or foreign savings) as the important variables determining domestic savings in developing countries. though, some of the studies also included demographic variables, government savings and labour market constraints in to the model to investigate their influence on private savings, the interest rate are sensitivity of savings has been the subject of literature relating to LDCs. Many economist remain doubtful that interest rates whether real or nominal, have any significant impact on private sector saving behaviour in developed or developing countries, since saving is defined as not consuming, economist who do not believe on the role of interest rates conclude that the interest rates have little impact on private savings decision to allocate income between consumption and savings: the interest rate of elasticity is held to be zero or insignificantly small.

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13. Agrawal, P., P. Sahoo, and R.K.Das.,(2007). The Real interest rate affects the savings rate positively in Bangladesh and Nepal but negatively in India, Pakistan and Sri Lanka Their analysis suggests that trying to influence the savings rate by manipulating interest rate is not likely to be practical policy option in these countries as interest rate changes have only a minor impact on savings rate.

14. Arron and Meulbauer (1999) present the determinants of private savings in south Africa, Separately examining personal and corporate sector saving behaviour over nearly three decades, from the late 1960s to 1997. This paper confirms that the main factors behind personal saving in South Africa include direct negative effects of wealth and financial liberalization and the direct positive effects of real interest rates and uncertainty. Moreover, corporations save more when dividend tax rates rise, while in the absence of the capital gains tax, higher inflation encourages corporate saving.

15. Mudit Kapoor and Shamika Ravi (2009), A recent study that is close to this research is the empirical test of the effect of interest rate on household consumption under taken by Mudit Kapoor and Shamika Ravi in 2009.This research was carried out after the change in Indian banking legislation that offered higher interest rate on the deposits of senior citizens (above sixty years). The banking legislation was established in the year 2001. This change in banking legislation in Indian provided an opportunity to find the relationship between interest rate and consumption more accurately. The author used the household consumption expenditure data from the National Sample Survey (NSS). The estimation of effect of change in interest rate on consumption was done through comparing the expenditures of households that are not eligible for the higher interest earnings on their deposits to households that are eligible. The eligibility criteria were based upon the age of the household members. When

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there is at least one member who is sixty years or above was eligible for the higher interest rate. The study has found a strong and significant short run impact on saving and consumption of households. But it failed to explain the long term effect due to the lack of sufficient data to explain the long term effect of interest rate. They found an immediate 12 percent decline in household consumption when the interest rates on deposits were increased by 50 basis points. The effect was primarily in non-food, non-essential items which were declined by 17 percent. The analysis was performed with the 2005-06 data. And to compare the results with prior to banking legislation, 2000-01 data was used.

The reviews of all these literatures have given a platform to do this dissertation. The reviews have given an experience of dependency of different variables in different situation and time frame. The review of the literatures has shown that the parameter of consideration and assumptions in the research significantly influences the conclusion.

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Chapter 3 Research methodology

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Research methodology means the method of preparing project. In other words project methodology is the way of preparing the project, and presenting the project report, the work is systematic and done in proper order as good work gives good results. Further the data collected to prepare the project must be relevant. Data collection will be done from following sources:1. Secondary Data Secondary data will be collected through:1. RBI 2. World Bank

The data of 1990-2010 of household consumption expenditure, real interest rates and growth of bank deposits in India has been taken.

Research Design: Descriptive Research Design has been used in the research work.

Tools and Techniques:

Regression Analysis is used to determine the impacts of determinants on interest rate with respect to household consumption rate in India

To make use of these variables, we sort them by year wise data of household consumption and interest rates, then calculated the mean, maximum, minimum, and standard deviation for each variable. We create a correlation matrix between all the variables and then run regressions to determine which variables are significant, at what level, and what optimal rates we might find.

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Chapter4 Analysis

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The period for which the data was taken for the study was 1990 to 2010. RBI was selected for the purpose of this study because data related to bank, GDP, inflation and interest rates easily available on their sites. Other data of household consumption expenditure is taken from www.tradingeconomics.com. Firstly we with the help of available data divided the data into two parts and two regression analysis.
a) First regression is between the household consumption expenditure which is

dependent variable and real interest rates which is independent variable

b) Second regression is between the household consumption expenditure which is

independent and percentage growth of bank deposits which is dependent variable

year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

change in household final consumption expenditure -51.6149738 22.79651767 134.6987672 21.38595727 51.40069225 51.22721334 -67.6679222 208.085275 3.922099844 -34.5655198 87.65897 -47.9174015 131.5405509 8.127161015 309.2946728 -50.1413449 23.95665784 -12.6597705 12.47410908

years 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 21

%age growth 16.92228 17.03604 18.07514 15.73121 17.7109 19.5367 12.13879 16.54607 19.74114 17.94073 19.26655 16.15185 14.36054 15.96323 17.57355 12.35661 21.70928 23.84411 22.39744

year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

real interest rates 4 3.7 9 5.9 4.8 6 7.9 7 5.6 8 8.4 8.35 8.45 7.25 4.85 6.31 4.49 6.87 6.2

2009 2010

39.36931973 -100

2009 2010

19.93066 17.18041

2009 2010

4.32 2.01

Data interpretation
The period for which the data was taken for the study was 1990 to 2010. RBI was selected for the purpose of this study because data related to bank, GDP inflation and interest rates are easily available on their sites. Other data of household consumption expenditure is taken from www.tradingeconomics.com. Firstly we with the help of available data divided the data into two parts and applied regression analysis.
a) First regression is between the household consumption expenditure which is

dependent variable and real interest rates which is independent variable

b) Second regression is between the household consumption expenditure which is

independent and percentage growth of bank deposits which is dependent variable

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Regression model 1
Degree of percentage change in household consumption = 0 + 1 (Real interest rate) + Where is the error term with the distribution N (0,1)

Correlations

change_in_household __final_consumption_ expenditure Pearson Correlation change_in_household__final_consum ption_expenditure real_interest_rates 1.000 .173 real_interest_rates

.173

1.000

Above table shows the correlation between the change household final consumption expenditure and the change in the real interest. It clearly depicts that correlation between the two variables in very less, i.e. 0.173 and the level of significance is weak, i.e. 0.227. This shows that there is least relation between the two variables.

Regression model analysis Degree of percentage change in household consumption = -19.854 (75.223) [-.264] (.795*) +8.951 (real interest rate) (11.704) [.764] (.454*) {0.173}

F = 0.585 R2 = 0.030 R = 00.173

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Figures in round brackets shows Standard Errors Figures in square brackets shows t-values (*) Two tailed 0.05 level of significance Figures in curly brackets shows beta values

It shows that the high R value (0.173), indicates a very weak relationship b/w the independent variables (real interest rates) and its square (0.030) and the dependent variable percentage change in growth of bank deposits). The R-square for said variables is coming 0.030. It means that there is no significant relationship between the independent predictors & dependent variable. The value of beta for demand is the highest (0.173), this shows that it has a positively influence on the % change in real interest rates.

Regression model 2
Degree of percentage growth of bank deposits= 0 + 1 (percentage change in final consumption expenditure) +

where is the error term with the distribution N (0,1)

Correlations change_in_househ old__final_consu mption_expenditur percentage_growth Pearson Correlation percentage_growth change_in_household__final_co nsumption_expenditure 1.000 -.456 e -.456 1.000

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Above Table shows the correlation between the change in percentage growth of bank deposit with the percentage change in household final consumption. It clearly depicts that correlation between the two variables in very negatively correlated , i.e. -0.456. and the level of significance is weak, i.e. 0.22. This shows that there is least relation between the two variable.

Regression model analysis Degree of percentage growth of bank deposits = 18.308 (.669) [27.360] (0.000*) -0.014(change in final household consumption) (0.007) [-.2.176] (.043*) {-.456}

F = 4.735 R2 = 0.208 R = 0.456

Figures in round brackets shows Standard Errors Figures in square brackets shows t-values (*) Two tailed 0.05 level of significance Figures in curly brackets shows beta values

It shows that the high multiple R value (.456), indicates a very strong relationship b/w the independent variables (%change in final household consumption) and its square (.208) and the dependent variable percentage growth of bank deposits). The R-square for said variables is coming 0.208. It means that there is little significant relationship between the independent predictors & dependent variable. The value of beta for demand is the highest (-.456), this shows that it has a negatively influence on the % change in final household consumption.

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Chapter 5 Findings and conclusion

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Our result shows that: 1) a The correlation between the change household final consumption expenditure and the change in the real interest. It clearly depicts that correlation between the two variables in very less, i.e. 0.173 and the level of significance is weak, i.e. 0.227. This shows that there is least relation between the two variables. b) The high R value (0.173), indicates a very weak relationship b/w the independent variables (real interest rates) and its square (0.030) and the dependent variable percentage change in growth of bank deposits). The R-square for said variables is coming 0.030. It means that there is no significant relationship between the independent predictors & dependent variable. The value of beta for demand is the highest (0.173), this shows that it has a positively influence on the percentage change in real interest rates.

2) a) The correlation between the changes in percentage growth of bank deposit with the percentage change in household final consumption. It clearly depicts that correlation between the two variables in very negatively correlated, i.e. -0.456. And the level of significance is weak, i.e. 0.22. This shows that there is least relation between the two variables. b) It shows that the high multiple R value (.456), indicates a very strong relationship b/w the independent variables (%change in final household consumption) and its square (.208) and the dependent variable percentage growth of bank deposits). The R-square for said variables is coming 0.208. It means that there is little significant relationship between the independent predictors & dependent variable. The value of beta for demand is the highest (-.456), this shows that it has a negatively influence on the % change in final household consumption.

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From the study we conclude that relationship between the household consumption, real interest rate and bank deposits are interrelated in long run but real interest rates impact to consumption is very less and consumption impact to saving or bank deposits is there. Second we find that household final consumption expenditure is negatively correlated to growth of bank deposits.

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References

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1. Arrieta,E.1988.Saving and growth: A Reinterpretation Carnegie-Rochester series on public policy,Vol,40. pp.133-92.

2. Agrawal, P., P.Sahoo, and R.K.Das.,2007. Saving Behaviour in South Asia.University of Delhi Enclave Working Paper series No. E/289/2008.

3. Aron ,Janine and J.Meullbauer.1999. Estimates of personal sector wealth for south Africa. CSAE working paper series 1999-17.

4. Bhattarai,R and L. Kafle.2011 saving behaviour in developing country:an empirical Analysis. Nepal Rastra Bank, Kathmandu, Nepal.

5. Deaton, Angus. 1992. Understanding Consumption . Oxford: Clarendon Press.

6. Douglas Bernheim.B and John Karl Scholz, "Private Saving and Public Policy," Tax Policy andthe Economy, vol. 7 (Cambridge, Mass.: MIT Press, 1993).

7. Fry,S.1995. Saving Mobilization in Developing Countries: Bottleness and Reform Proposal. Saving and Development, Vol. 14,Pp. 117-131. 8. Hall, Robert E. 1988. Intertemporal Substitution in Consumption. Journal of Political Economy.

9. John Y. Campbell and N. Gregory Mankiw (1989), "Consumption, Income and Interest Rates:Reinterpreting the Time Series Evidence," in Olivier Jean Blanchard and Stanley Fischer,eds., NBER Macroeconomics Annual: (Cambridge, Mass.: MIT Press, 1989).

10. Martin Feldstein .1994, "Fiscal Policies, Capital Formation, and Capitalism," Working Paper (National Bureau of Economic Research, Cambridge, Mass., October 1994).

11. Mudit Kapoor and Shamika Ravi. 1999, The Effect of Interest Rate on Household Consumption: Evidence from a Natural Experiment in India, American Economic Association.
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12. Orazio P. Attanasio and Guglielmo Weber (July 1993), "Consumption Growth, the Interest Rate, and Aggregation," Review of Economic Studies.

13. Robert B. Avery and Arthur B. Kennickell (December 1991), "Household Saving in the U.S.," Review of Income and Wealth, vol. 37, no. 4

14. Richard Cantor.1989, "Interest Rates, Household Cash Flow, and Consumer Expenditures," Quarterly Review, Federal Reserve Bank of New York, Summer.

15. Shrestha. R..P. 2010. Private Savings Behaviour in Nepal: Long-term Determinants and short run Dynamics. Economic Review, occasional paper, Nepal Rastra Bank, Kathmandu, Nepal.

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Annexure

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Annexure 1
Correlations change_in_hous ehold__final_con sumption_expen real_interest_rat diture Pearson Correlation change_in_household__final _consumption_expenditure real_interest_rates Sig. (1-tailed) change_in_household__final _consumption_expenditure real_interest_rates N change_in_household__final _consumption_expenditure real_interest_rates 1.000 .173 . .227 21 21 es .173 1.000 .227 . 21 21

Model Summary Adjusted R Model 1 R .173

a

Std. Error of the Estimate 97.95824 R Square Change .030 F Change

Change Statistics df1 1 df2

R Square .030

Square -.021

.585

a. Predictors: (Constant), real_interest_rates

ANOVA Model 1 Regression Residual Total Sum of Squares 5612.542 182320.530 187933.071 df

Mean Square 1 19 20 5612.542 9595.817

F .585

Sig. .454
a

a. Predictors: (Constant), real_interest_rates b. Dependent Variable: change_in_household__final_consumption_expenditure

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Annexure 2

Correlations change_in_hous ehold__final_con percentage_gro sumption_expen wth Pearson Correlation percentage_growth change_in_household__final _consumption_expenditure Sig. (1-tailed) percentage_growth change_in_household__final _consumption_expenditure N percentage_growth change_in_household__final _consumption_expenditure 1.000 -.456 . .022 20 20 diture -.456 1.000 .022 . 20 20

Model Summary Adjusted R Model 1 R .456

a

Std. Error of the Estimate R Square Change .208

Change Statistics F Change 4.735 df1 1 df2

R Square .208

Square .164

2.76111

a. Predictors: (Constant), change_in_household__final_consumption_expenditure

ANOVA Model 1 Regression Residual Total Sum of Squares 36.101 137.227 173.329 df

Mean Square 1 18 19 36.101 7.624

F 4.735

Sig. .043
a

a. Predictors: (Constant), change_in_household__final_consumption_expenditure b. Dependent Variable: percentage_growth

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