Modify your search
Impact of Monetary and Macroeconomic Factors on Wheat Prices in Pakistan: Implications for Food Security
Khalid Mushtaq, Abdul Ghafoor, Abedullah, and Farhan Ahmad
Published:Jan - June 2011
This paper attempts to evaluate the impact of monetary and macroeconomic factors on real wheat prices in Pakistan for the period 1976-2010, using Johansen’s co-integration approach. The Augmented Dickey-Fuller test reveals that all the variables used are first-difference stationary, except the trade openness indicator, which is second-difference stationary. There is also a long-run equilibrium relationship among these variables. The results indicate that real money supply, openness of the economy, and the real exchange rate have a significant effect on real wheat prices in the long run. The impulse response function shows that a trade openness shock impacted wheat prices to some extent and that it took three to four years for prices to become stable, following the shock. The findings of the study suggest that the policy thrust should focus on increasing wheat supply in the country by enhancing production or by liberalizing trade. Efforts should also be directed toward stabilizing the value of the Pakistani rupee against foreign currencies, especially the US dollar.
KEYWORDS:
Wheat prices,
co-integration,
Pakistan.
JEL:
E31,
E00.
The Reserve Equation and the Analytics of Pakistan’s Monetary Policy
Rubina Hassan
Published:Jan - June 2011
This paper deals with the computation and analysis of some fundamental reserve aggregates and associated monetary statistics, which impart important information regarding the design and conduct of monetary policy at the State Bank of Pakistan (SBP). Specifically, we compute the data series for borrowed, unborrowed, free, and drainable reserves using balance sheet data published by the SBP for the period 1985-2009. Results show that Pakistan’s monetary policy revolves around managing the exchange rate while using the t-bill rate as a key policy instrument. However, the value of the t-bill rate is both incorrectly and sub-optimally related to macroeconomic fundamentals rendering monetary policy time inconsistent. This hinges on the finding that, since 2000/01, the SBP has targeted the net free reserves of the banking system at 4 percent of total private deposits. Among other observations, we find that the scope of open market operations as a tool of monetary policy remains limited and that this limited role of open market defenses derives from the concern of the central bank to sterilize its own foreign exchange reserves. Furthermore, the growth rate of unborrowed plus drainable reserves bears a strong negative correlation with the annual average rate of inflation, which, on account of the former being consistently negative since 2005, implies that neither the government nor the SBP have an overriding concern for controlling inflation.
KEYWORDS:
Monetary policy,
central banks,
Taylor rule,
monetary targets,
Pakistan.
JEL:
E52,
E58,
E51.
The Role of Education and Income in Poverty Alleviation: A Cross-Country Analysis
Pervez Zamurrad Janjua and Usman Ahmed Kamal
Published:Jan - June 2011
The existing literature on education and poverty considers mostly primary data from an income point of view. However, the benefits of education vary from a direct income effect to positive externalities, which can help reduce poverty. This paper uses panel data for 40 developing countries for the period 1999 to 2007, and estimates coefficients by applying the random effect generalized least squares (GLS) technique. The study concludes, first, that income growth plays a moderately positive role in alleviating poverty, but that income distribution does not play a key role in poverty alleviation in the sample overall. Second, it concludes that education is the most significant contributor to poverty alleviation.
KEYWORDS:
Education,
income,
income distribution,
poverty alleviation,
GLS,
Pakistan.
JEL:
I32,
I30.
Book Review: Edited by Shahrukh Rafi Khan and Jens Christiansen Towards New Developmentalism, Market as Means Rather than Master, Routledge, Taylor and Francis Group, London and New York, 2011, ISBN13: 978-0-415-77984-5, pp 286.
Shahrukh Rafi Khan and Jens Christiansen
Published:Jan - June 2011
Edited by Shahrukh Rafi Khan and Jens Christiansen, Towards New Developmentalism, Market as Means Rather than Master, Routledge, Taylor and Francis Group, London and New York, 2011, ISBN13: 978-0-415-77984-5, pp 286.
Neo-liberalism has virtually seen its day and over the last three decades a significant amount of scholarship has evolved that provides a viable alternative to this paradigm. Further, the global financial and economic crisis plaguing countries the world over from 2007-2009 has led to the exploration of alternatives that are presented in this book by scholars.
KEYWORDS:
Book review,
neo-liberalism,
strategy,
financial crisis.
JEL:
N/A.
Asymmetric Behavior of Inflation Uncertainty and Friedman-Ball Hypothesis: Evidence from Pakistan
Syed Kumail Abbas Rizvi and Bushra Naqvi
Published:July - Dec 2010
This paper is a first attempt to measure and analyze inflation uncertainty in
Pakistan. It makes several contributions to the literature. In the first stage, using
quarterly data from 1976:01 to 2008:02, we model inflation uncertainty as a time
varying process using the GARCH framework. In the second stage, we analyze
the asymmetric behavior of inflation uncertainty using the GJR-GARCH and
EGARCH models. For further analysis of asymmetry and leverage effects, we
develop news impact curves as proposed by Pagan and Schwart (1990). Finally
we investigate the causality and its direction between inflation and inflation
uncertainty by using the bivariate Granger-Causality test to determine which
inflation uncertainty hypothesis (Friedman-Ball or Cukierman-Meltzer) holds
true for Pakistani data. We obtain two important results. First, the GJR-GARCH
and EGARCH models are more successful in capturing inflation uncertainty and
its asymmetric behavior than the simple GARCH model. This can also be seen
from news impact curves showing a significant level of asymmetry. Second, there
is strong evidence that the Friedman-Ball inflation uncertainty hypothesis holds
true for Pakistan.
KEYWORDS:
Inflation,
uncertainty,
GJR-GARCH,
EGARCH,
Friedman-Ball hypothesis,
Pakistan.
JEL:
E31,
C22,
E37.
Does Trade Openness Reduce Inflation? Empirical Evidence from Pakistan
Tahir Mukhtar
Published:July - Dec 2010
One of the more celebrated propositions found in international trade is
the case that trade liberalization is associated with declining prices, so that
protectionism is inflationary. In line with this view, Romer (1993) postulates the
hypothesis that inflation is lower in small and open economies. The objective of
this study is to examine Romer’s hypothesis in Pakistan. For this purpose, we
have used multivariate cointegration and a vector error correction model. The
study covers the period from 1960 to 2007. The empirical findings under the
cointegration test show that there is a significant negative long-run relationship
between inflation and trade openness, which confirms the existence of Romer’s
hypothesis in Pakistan.
KEYWORDS:
Trade openness,
inflation,
cointegration,
vector error correction model,
Pakistan.
JEL:
F41,
C22,
O53.
Adopting Inflation Targeting in Pakistan: An Empirical Analysis
Nadia Saleem
Published:July - Dec 2010
The objective of this paper is to assess the conditions for inflation
targeting in Pakistan. The recent inflationary surge in Pakistan calls for
rethinking monetary policy afresh. This paper argues the case for inflation
targeting in Pakistan as a policy option to achieve price stability. The country
experienced an inflation rate of just below 10 percent during 1970-2009, which
makes it a potential candidate for inflation targeting. Applying the VAR
technique to data for the same period, inflation is shown to be adaptive in nature,
leading us to reject the accelerationist hypothesis. The Lucas critique holds as
people are found to use forward-looking models in forming expectations about
inflation. The paper also sheds some light on the State Bank of Pakistan’s level of
preparedness for the possibility of adopting inflation targeting, for which
transparency and autonomy are prerequisites. The interest rate channel can play
the role of a nominal anchor in the long run.
KEYWORDS:
Monetary policy,
central bank,
inflation targeting,
Pakistan.
JEL:
E31,
E52,
C32.
Measurement and Decomposition of Consumption Inequality in Pakistan
Muhammad Idrees and Eatzaz Ahmad
Published:July - Dec 2010
This paper shows that inequality in consumption expenditure in
Pakistan improved slightly between 1992/93 and 2004/05, and that the extent of
inequality in food consumption has remained substantially lower than in nonfood
consumption. An important result is that household expenditure on education
has been more unequally distributed than overall consumption expenditures. In
contrast, healthcare expenditure in urban areas has been distributed relatively
more evenly in recent years, while the level of inequality in healthcare
expenditures in rural areas has remained persistent and somewhat higher.
KEYWORDS:
Consumption inequality,
decomposition,
Gini coefficient,
Pakistan.
JEL:
D63,
D6,
I3,
D31.
Fiscal Marksmanship in Pakistan
Muhammad Zakaria and Shujat Ali
Published:July - Dec 2010
Using Theil’s inequality coefficient based on the mean square prediction error, this paper evaluates the forecasting efficiency of the central government budget and revised budget estimates in Pakistan for the period 1987/88 to 2007/08 and decomposes the errors into biasedness, unequal variation and random components to analyze the source of error. The results reveal that budgetary forecasting is inefficient in Pakistan and the error is due mainly to exogenous variables (random factors). We also find that neither the budget nor revised budget estimates of revenue and expenditure satisfy the criteria of rational expectations of forecasting. Further, there is very little evidence of improvement in the efficiency of budgetary forecasts over time.
KEYWORDS:
Budget,
Forecast errors,
Theil’s inequality coefficient,
rational expectations,
Pakistan.
JEL:
C53,
E62,
H68.
A Note on the Pricing of Liquidity in Stock Returns
Nawazish Mirza
Published:July - Dec 2010
Keynes (1930) proposed that an asset is more liquid than another “if it is more certainly realisable at short notice without loss” (vol. II, p. 67). This definition suggests that the liquidity of an asset is twofold. First, an asset should have a market that can readily absorb the sale, and second, do so without risk to its final value. This suggests that investors should be rewarded for both the level of liquidity and liquidity risk. The standard form of asset pricing models assumes financial markets to be perfectly liquid. In a perfectly liquid market, there are no arbitrage possibilities. Therefore, the under traditional asset pricing approach, all assets that have similar expected cash flows must have the same price. This phenomenon of frictionless markets ignores the impact of liquidity of financial assets on their respective prices and consequently on returns. The relation between liquidity and expected returns has been statistically observed and explains certain market anomalies such as the small firm effect, equity premium, and risk-free rate puzzle.
KEYWORDS:
stock returns,
Liquidity,
frictionless markets.
JEL:
N/A.