Application of a structural autoregressive vector model to determine the most important factors affecting the demand for bank deposits in Egypt

Abstract

The study applied the Structural Vector Autoregressive (SVAR) model to identify the most important factors influencing the demand for bank deposits in Egypt and to measure the relative importance of each of these factors. It also aimed to analyze the dynamic effects of shocks affecting the independent variables—namely the exchange rate, interest rate, inflation rate, average per capita income, and government spending—on the dependent variable, which is the volume of bank deposits. This was achieved by calculating the extent to which each shock contributes to the variance in the forecast error and by measuring the expected response of a variable when a sudden random shock occurs in one of the other variables within the model during the period from 1993 to 2023, The results of the impulse response functions indicated that the volume of bank deposits in Egypt is indeed affected by shocks to the study variables. The exchange rate was found to have a weak and declining negative effect in both the short and long term, while the interest rate exerts a negative influence in the short run that turns positive in the long run. Average per capita income shows a positive effect in the short term, which shifts to a weak negative effect in the long term. Government spending displays a fluctuating impact, ranging from a weak negative to a mild positive effect. The inflation rate was found to have a weak and decreasing negative effect in both the short and long term. Finally, the own shocks of bank deposits exhibited a strong and increasing positive effect over both time horizons.