Mechanism of Volatility Spillover Between Stock, Currency, and Commodity Markets of Pakistan

This research aims to examine the mechanism of volatility transmission between stock, currency, and commodity markets of Pakistan. For this purpose, daily data covering the period August 4, 1997 to August 31, 2016 is analysed. Empirical investigation is conducted by using EGARCH model. The strength of the study is analysis of the commodity market together with stock and currency markets of Pakistan. Results of the EGARCH model suggests that bidirectional volatility spillover exists between all the bivariate cases of the three markets except in the case of volatility spillover from the currency market to the commodity market. JEL Classifications: Q43, G10, C13, F31, F36 Keywords: Stock, Currency and Commodity Markets, Volatility Spillover, EGARCH Mode

Exchange Rate, Output and Macroeconomic Policy: A Structuralist Approach

Current account imbalance and concomitant macroeconomic instability in emerging market economies have been major issues of recent macroeconomic modelling. This paper addresses these issues by asking how international interdependence has impinged on key macroeconomic variables and policy options. There are three assets: domestic bonds, foreign bonds and money. Domestic bonds and foreign bonds are imperfect substitutes due to presence of risk premium. The striking features of the model include endogenous risk premium and balance sheet effect on investment demand due to exchange rate depreciation. We use a simple open economy structuralist macro model that explains the interaction between current account adjustment and exchange rate dynamics. The balance sheet effect and the risk premium together explain how fiscal expansion or monetary expansion may have both short run and long run contractionary effect on the output level with worsening current account balance in the short run. JEL Classifications: F41, F32, E52, E62 Keywords: Current Account, Exchange Rate, Risk Premium, Balance Sheet Effec

The Pension Bomb and Possible Solutions

Public sector employment remains an attraction for two important reasons: job security and a guaranteed pension (Dixit, 2002). Unlike other countries, Pakistan has not reformed its public sector pension system and has maintained a pay-as-u–go defined benefits type pension system which has resulted in build up of unfunded liability for the government. Pakistan practices a legacy pension system where pensioners are paid directly from the revenues as part of the current expenditures. This practice is inherently unsustainable as pension expenditure growing at around 25 percent, cannot be provided from an economy growing at a significantly lower rate. The pension burden is therefore bound to grow, doubling every four-years. In the fiscal year 2018-19, federal superannuation and pension expenditures were almost 78 percent of the value for PSDP expenditures and it increased in FY 2019-20 to 87 percent (463,419 million Rupees and 533,220 million Rupees respectively). The share of pensions as a percentage of current expenditures is also increasing overtime (for FY 2019-20 it stood around 7.6 percent).

Amita Baviskar. Uncivil City: Ecology, Equity and the Commons in Delhi. 2020, Sage and Yodapress.

Amita Baviskar’s latest book titled Uncivil City: Ecology, Equity and the Commons in Delhi provides an in-depth analysis of exclusion of the Commons from the socio-economic and political spaces of inarguably India’s most powerful city; Delhi. The book is divided into three sections with eights chapters encompassing book’s themes. It starts with setting the context by explaining the reasons for titling the book as ‘Uncivil City’. Conceptualising Delhi as Uncivil expounds the City’s changing spatial dynamics which the author has detailed by analysing City’s social history by doing socio-historical analysis. She also reminisces her early-life experiences with the City; what the City was for the Commons in the past; how infrastructural development has excluded the Commons; what the City’s formal politics and politicised environment is doing to the Commons and what does future entail for them

Monetary Paradoxes of Baby-Sitting Cooperatives

Many authors have described and modelled Keynesian effects in a Baby-sitting Cooperative (BSC), which has the underlying structure of a single good barter economy. We construct a simple model of the BSC economy to explore this issue, and find very surprising results. Outcomes depend on agents beliefs about the decision making process of others, as in the Keynesian beauty contest. For some structures of beliefs, money is neutral, while for others, money can have short and long run effects. The value of money can be high, low, or zero, depending purely upon expectational effects. Also, despite the fact that this is a single good economy, partial equilibrium supply and demand analysis do not work as expected. Some equilibria have excess supply, others have excess demand, and none have a match between supply and demand. Furthermore, flexible prices cannot fix this problem. An additional paradoxical property is that excessive trading can take place. Even though all trades are done with mutual consent, some of them decrease welfare, and banning certain types of trade can lead to Pareto improvements. Thus the superficially simple single good barter economy of BSC displays some subtle, complex and counter-intuitive properties. JEL Classifications: D71, E52 Keywords: Monetary Policy, Keynesian Economics, Sunspot Equilibria, Neutrality of Mone

Nadeem Ul Haque. Looking Back: How Pakistan Became an Asian Tiger by 2050

The book is about development economics and, at the same time, a work of fiction, which predicts the future of Pakistan as a developed country. Though the book is written and conceived on a strong theoretical basis, that is, ‘complexity analysis,’ it remains a fictional work. Because the book is based on complexity analysis, it would fall under the rubric of ‘speculative fiction’, as it attempts to speculate the future development of Pakistan. As far as speculative fiction is concerned, it is of two types, namely, dystopian and utopian. The book is indeed a ‘utopian speculative fiction’ as it presents Pakistan as a very developed country, contrary to current conditions where Pakistan is striving hard for its survival. Thus, the book equates to the likes of ‘Orwellian’ works, such as “1984”. Right at the beginning of the book, the author argues that conventional economic analysis has failed to yield any sound analysis of the economy that can be employed for development economics. He further adds that both macroeconomics and microeconomics are inherently insufficient to lead to any meaningful policy analysis and recommendations. Thus, the author presents complexity analysis as an alternative tool for development economics

Why do We Have Less Investment than China and India?

1. INTRODUCTION Pakistan has experienced macroeconomic instability since the early seventies. Because of the country’s persistent macroeconomic uncertainty, savings and private investment have been discouraged, resulting in low aggregate investment and volatile output levels. It has one of the lowest investment-to-GDP ratios that is 15 percent, about half of the South Asian average of 30 percent. Here we will review the evidence from Pakistan to inform policymaking and local research about (1) The investment trends and patterns in the economy and comparison with its regional counterparts. (2) The factors which can stimulate the investment

Machine Learning for Economists: An Introduction

Machine Learning (henceforth ML) refers to the set of algorithms and computational methods which enable computers to learn patterns from training data without being explicitly programmed to do so. ML uses training data to learn patterns by estimating a mathematical model and making predictions in out of sample based on new or unseen input data. ML has the tremendous capacity to discover complex, flexible and crucially generalisable structure in training data. Conceptually speaking, ML can be thought of as a set of complex function approximation techniques which help us learn the unknown and potentially highly nonlinear mapping between the data and prediction outcomes, outperforming traditional techniques. 1 In this exposition, my aim is to provide a basic and non-technical overview of 2 machine learning and its applications for economists including development economists. For more technical and complete treatments, you may consult Alpaydin (2020) and James, et al. (2013). You may also wish to refer to my four lecture series on machine learning on YouTube https:// www.youtube.com/watch?v=E9dLEAZW3L4 and my GitHub page for detailed and more technical lecture slides https://github.com/sonanmemon/Introductionto-ML-For-Economists

Exchange Rate Policy Must Seek Undervaluation!

This note provides overwhelming evidence that currency undervaluation is beneficial for economic growth. A macro-econometric model shows that the SBP continually used our scarce foreign exchange reserves to keep the exchange rate arbitrarily overvalued throughout history. This is one important factor that has contributed to our repeated BOP crises and IMF programmes. We hope that this note will inform the exchange rate policy to keep an undervalued target exchange rate and not use reserves to fight overvaluation (see also Jalil, 2020)

Policy-making by Understanding the Generational Economy

The current population age structure of Pakistan provides the country an opportunity to reap the demographic dividend but there is no concrete evidence on its magnitude. The National Transfer Accounts (NTA) can fill this gap by quantifying the wealth flows taking place in a population through an improved understanding of the generational economy.2 The NTA provides estimates of people’s income and their consumption at every age. What is more important, however, is that the NTA helps to understand how do people, especially the young and the old who consume more than they produce, support themselves. It sheds light on whether it is through the private or public sources that the existing deficit—the difference between income and consumption—if any is filled. The estimation of the NTA for Pakistan, therefore, would strengthen our understanding of the linkages between population dynamics and development. The NTA for Pakistan provides the opportunity to look at the economic indicators through the perspective of age. It can help design public policies ranging from healthcare, education, gender equality, reproductive health and social protection to economic, social and political implications of population ageing and generational equity