AN EMPIRICAL MODELLING ON SAVINGS BEHAVIOUR IN MALAYSIA

Abstract

The purpose of this study is to re-investigate the savings behaviour in Malaysia through the cointegration and causality analyses. This study covered the annual data from 1970 to 2004. The results of bounds test confirmed a long run equilibrium relationship between savings and its determinants, namely real income, dependency ratio and real interest rates. The study found that the major causes of savings in Malaysia are real income and dependency ratio. On the other hand, the effect of real interest rate on savings in Malaysia is less. Therefore, monetary policy is not an effective macroeconomic policy instrument to encourage savings in Malaysia although savings and interest rates showed bilateral causality. In addition, savings Granger caused economic growth in Malaysia and the study found that households in Malaysia are very protective and the savings behaviour is driven by the precautionary savings.