The Impact of Interest Rate Changes and Inflation on Private Consumption Spending in Egypt during the period (1980-2022)

Document Type : Original Article

Authors

1 Department of Economics and Public Finance - Faculty of Commerce - Kafr El-Sheikh University

2 Lecturer of Economics, Faculty of Politics and Economics - Beni Suef University

Abstract

This study aims to examines the impact of Interest Rate Changes and inflation on Private Consumption Spending in Egypt using an auto- Regressive Distributed lag model (ARDL), based on annual data during the period (1980 -2022). The study found that there is a positive relationship between income and Private Consumption Spending in the short and long run, which supports the Keynesian hypothesis. The study also showed that the impact of income on Private Consumption Spending in the long run was higher than its impact in the short run, which supports the life cycle hypothesis. While there is a negative impact of government spending on Private Consumption Spending in the short run, which supports a crowding-out effect between government consumption spending and private consumption spending in the short run, while there is a positive impact of government consumption spending in the long run. Wealth, inflation, and interest rates also have a negative effect on private consumption spending in the short run, while there is a positive effect in the long run. The exchange rate also has a negative impact on private consumer spending in the short and long run.

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