Interest Rate Volatility and Its Impact on Pakistan's Savings, Investment, And GDP Growth: A Quantitative Approach

Abstract

Crucial area of economic research are Interest rates, savings, investment, and economic growth and these have both national and international importance, particularly in relation to macroeconomic stability and growth policy. The impact of interest rate on gross domestic product (GDP), investment, and savings in Pakistan over the period 1990-2023 examined in this study. Using the model "Autoregressive Distributed Lag (ARDL)" this study investigates the dynamic interrelationships among these key macroeconomic variables. The net findings show that interest rates exert a negative influence on GDP and investment, indicating that higher interest rates tend to demotivate productive activities and economic growth. Despite these, the results demonstrate that unemployment and inflation are oppositely linked with economic growth, while GDP and savings exhibit a positive relation reflecting the role of savings in promoting growth. Based on these outcomes, it is suggested that a reduction in interest rates could stimulate investment and hance economic development, thereby fostering sustainable growth in Pakistan. The study underscores the importance of a balanced monetary policy framework that manages interest rate adjustments in a way that encourages both investment-led growth and savings within the economy.