Full Article

The relationship between deposit interest rate and savings is a crucial monetary policy issue in Nigeria. Moreover, the Central Bank of Nigeria introduced the monetary policy rate (MPR) in the country in 2006 to serve as the anchor rate for market interest rates, such as deposit interest rate. Therefore, the objective of this paper is two-fold: (i) To investigate whether there was a structural change in the relationship between deposit interest rate and aggregate savings in Nigeria in 2006, due to the introduction of the MPR. (ii) To assess the short-run and long-run impacts of the structural change. To achieve the objective the study employed the Chow test and the dummy-based structural change technique within the framework of the autoregressive distributed lag (ARDL) cointegration model, based on time series data spanning 1981 to 2021. The results showed that the introduction of the MPR caused a structural change in the relationship between Nigeria’s deposit interest rate and aggregate savings in 2006. However, the dummy-based ARDL technique gave further information by showing that the structural change only occurred in the short-run. The policy implications of the findings is that monetary policy measures need to be tailored towards making deposit interest rate to increase aggregate savings via the MPR channel in the long-run as well. Keywords: Monetary policy rate, savings behaviour, monetary policy rate, structural break, Nigeria JEL Classification: E2, E4, E5