RELATIONSHIP BETWEEN INTEREST RATE AND INFLATION RATE IN GUINEA
Abstract
ABSTRACT
The main objective of this study is to investigate the trend between inflation and interest rate in Guinea. Unit root test (Augmented Dickey- Fuller test) has been exploited to check the integration order of the variables. A co-integration analysis with four variables (c growth, interest rate, GDP, and inflation level) is employed. Study adopted variables data such as World Bank Indicator (2016), Guinea Stastical Service (2010) and Central Bank of Guinea (2013). Findings indicated that both trace test and max eigen value static showed that the four equations have significant existent 1% or 5%. It means that all variables have long term equilibrium relationship. Study adopted the same four variables to discuss Granger Causality relationship; findings indicated that inflation causes interest rate. On the other hand, all other variables are independent with each other.
From the findings, it is clear that inflation and interest rate have a negative effect on economic growth in Nigeria. The study therefore recommend that policy makers should focus on maintaining inflation at a low rate (single digit) and ensuring interest rate stability as this is an important factor in inflation rate and interest rate. Regression was conducted to test growth rate with interest rate which showed that current interest rate has an influence power on growth rate.
Keywords: Inflation, Economic Growth, Interest Rate, GDP JEL
Classification: E31, 040, E43, E01
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