LINEAR ANALYSIS OF THE RELATIONSHIP BETWEEN THE REAL INTEREST RATE AND THE INFLATION RATE IN AFGHANISTAN

Year 2024, Volume: 4 Issue: 2, 30 - 42, 19.10.2024

Shiraqa Khatami , Hüdaverdi Bircan

Abstract

Inflation, the continuous increase in the general price level, is referred to as a consequence of the capitalist system, where the interest rate represents the price paid for money and debt securities. It is anticipated that the understanding and recognition of the relationship between inflation and the real interest rate, as presented in this study “Analyzing the Relationship Between Real Interest Rates and Inflation in the Economy of Afghanistan”, can enable control over inflation levels by economic agents through the adjustment of the real interest rate at decision-making levels.
In this applied quantitative descriptive research design, time series data from the second category of sources acquired from the WDI (World Development Indicators) were subjected to analysis using correlation and Ordinary Least Squares (OLS) linear model through SPSS and EViews software.
The research findings affirm the normalcy of the data through Kolmogorov-Smirnov, Shapiro-Wilk, and kurtosis-skewness tests. The strong fit of real figures with model-estimated values is evidenced by the calculated adjusted coefficient of determination for the model at 97.7%. Homoscedasticity of residuals is indicated by the Breusch-Pagan-Godfrey test, and no autocorrelation among model residuals is suggested by the Breusch-Godfrey test. The Jarque-Bera test's probability value, exceeding 0.05, supports the normality of model residuals. Lastly, the stability test of parameters discloses the enduring stability of the relationship between the real interest rate and inflation in Afghanistan.
A substantial impact of the real interest rate on inflation is demonstrated by the study's findings. The OLS linear model coefficient, approximately 0.942, and its intercept value, 14.273, are indicative of a high degree of model fit. The adjusted coefficient of determination for the model, at 0.977, underscores a comprehensive explanation, revealing that 97% of the variation in the dependent variable (inflation) is explained by the independent variable (real interest rate).

Keywords

Interest Rate, Inflation Rate, SPSS, Eviews

AFGANISTAN'DA ENFLASYON ILE GERÇEK FAIZ ORANI ARASINDAKI ILIŞKIYININ LINEER ANALIZI

Abstract

Inflation, the continuous increase in the general price level, is referred to as a consequence of the capitalist system, where the interest rate represents the price paid for money and debt securities. It is anticipated that the understanding and recognition of the relationship between inflation and the real interest rate, as presented in this study “Analyzing the Relationship Between Real Interest Rates and Inflation in the Economy of Afghanistan”, can enable control over inflation levels by economic agents through the adjustment of the real interest rate at decision-making levels.
In this applied quantitative descriptive research design, time series data from the second category of sources acquired from the WDI (World Development Indicators) were subjected to analysis using correlation and Ordinary Least Squares (OLS) linear model through SPSS and EViews software.
The research findings affirm the normalcy of the data through Kolmogorov-Smirnov, Shapiro-Wilk, and kurtosis-skewness tests. The strong fit of real figures with model-estimated values is evidenced by the calculated adjusted coefficient of determination for the model at 97.7%. Homoscedasticity of residuals is indicated by the Breusch-Pagan-Godfrey test, and no autocorrelation among model residuals is suggested by the Breusch-Godfrey test. The Jarque-Bera test's probability value, exceeding 0.05, supports the normality of model residuals. Lastly, the stability test of parameters discloses the enduring stability of the relationship between the real interest rate and inflation in Afghanistan.
A substantial impact of the real interest rate on inflation is demonstrated by the study's findings. The OLS linear model coefficient, approximately 0.942, and its intercept value, 14.273, are indicative of a high degree of model fit. The adjusted coefficient of determination for the model, at 0.977, underscores a comprehensive explanation, revealing that 97% of the variation in the dependent variable (inflation) is explained by the independent variable (real interest rate).

Keywords

Interest Rate, Inflation Rate, SPSS, Eviews

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