LONG-RUN AND SHORT-RUN DYNAMICS OF FOREIGN EXCHANGE RESERVES FLOWS AND DOMESTIC CREDIT IN PAKISTAN

This study formulates and examines the monetary approach to the balance of payments by incorporating the currency substitution version of money demand function for Pakistan over the period 1962-2005 using FM-OLS and Johansen-Juselius cointegration techniques. The results suggest that real output, real exchange rate and domestic credit play an important role in the determination of foreign exchange reserves in Pakistan in long-as well in short-run. Moreover, the monetary authorities sterilize foreign exchange reserves by 12% in long-run and 66% in short-run. The results support the evidence of long-run causality running from reserves to domestic credit. One important policy implication from the empirical analysis is that the validity of the monetary approach to the balance of payments and the effectiveness of monetary policy depend on the nature of the money demand function. As the specification of money demand has changes the evidence based on monetary approach has also changes.Monetary Approach, Foreign Exchange Reserves, Domestic Credit, Cointegration

Trade Liberalisation, Financial Development and Economic Growth

This paper empirically investigates the impact of trade and financial liberalisation on economic growth in Pakistan using annual observations over the period 1961-2005. The analysis is based on the bound testing approach of cointegration advanced by Pesaran, et al. (2001). The empirical findings suggest that both trade and financial policies play an important role in enhancing economic growth in Pakistan in the long-run. However, the short-run responses of the real deposit rate and trade policy variables are very low, suggesting further acceleration of the reform process. The feedback coefficient suggests a very slow rate of adjustment towards long-run equilibrium. The estimated equation remains stable over the period of study as indicated by CUSUM and CUSUMQ stability tests.Trade Liberalisation, financial development, economic growth, Bound Test

Financial Sector Restructuring in Pakistan

In this paper an attempt has been made to review the financial restructuring process and its importance for economic growth and macroeconomic stability. The main focus is on the financial restructuring efforts undertaken by the government of Pakistan since 1990. We alsoanalyze the impacts of financial restructuring by using various financial indicators. The overallresults suggest that financial industry in Pakistan showing remarkable and unprecedented growth.Unlike 1990, the performance of financial sector is much better today. After the successfullycompletion of first generation of reforms, the introduction of second generation of reforms arerequired, which helps further strengthen the financial system and transform the benefits of the first generation of reforms to common man.

Trade,Financial and Growth Nexus in Pakistan

This paper empirically investigates the impact of trade and financial liberalization on economic growth in Pakistan using annual observations over the period 1961-2005. The analysis is based on the bound testing approach of cointegration advanced by Pesaran et al (2001). The empirical findings suggest that both trade and financial liberalization policies play an important role in nhancing economic growth in Pakistan in the long-run. However, the short-run responses of real deposit rate and trade policy variables are very low, suggesting further acceleration of reform process. The feedback coefficient suggests a very slow rate of adjustment towards long-run equilibrium. The estimated equation remains stable over the period of study as indicated by CUSUM and CUSUMQ stability tests.Trade Liberalization, Financial Development, Economic Growth, Bound Test

Energy Demand in Pakistan: A Disaggregate Analysis

This study examines the demand for energy at disaggregate level (gas, electricity and coal) for Pakistan over the period 1972-2007. Over main results suggest that electricity and coal consumption responds positively to changes in real income per capita and negatively to changes in domestic price level. The gas consumption responds negatively to real income and price changes in the shortrun, however, in the long-run real income exerts positive effect on gas consumption, while domestic price remains insignificant. Furthermore, in the short-run the average elasticities of price and real income for gas consumption (in absolute terms) are greater than that of electricity and coal consumption. The differences in elasticities of each component of energy have significant policy implications for income and revenue generation.Energy Demand, Cointegration, Pakistan

Capital Flows and Money Supply: The Degree of Sterilisation in Pakistan

Under the current managed float exchange rate system; the central bank may respond to an exchange market disequilibria by changing either the international reserves or the exchange rates. Under such a regime, a major policy difficulty is the interaction between exchange rate policies and monetary policies. The monetary authorities intervene in the exchange market in response to undesired fluctuations in exchange rates,1 could adversely affect monetary control and move the economy away from internal target such as price stability. Under such a policy dilemma, fully sterilised intervention2 involves a pure swap of foreign and domestic assets, which have not effect on the money supply, received greater attention by the policy-makers in early 1980s, particularly, through the experience of West Germany [Obstfeld (1983)]. Ideally, it provides an independent policy tool to deal with the exchange rate without affecting the internal policy targets. Moreover, it is argues that fully sterilised intervention insulate domestic policies completely from balance of payments considerations. Further, the effects of intervention on exchange rates are close to zero if intervention is completely sterilised. Given this conviction, it is hard to see why the central bank would intervene in the foreign exchange market and sterilised completely at the same time [Neumann (1984)]. It is further argued that sterilisation is capable to move exchange rates through either a portfolio or signaling channel. In developing countries, an intervention may not be used purely to stabilise exchange rate but to reduce its impacts of volatile exchange rates on price level.

What Determines Private Investment? The Case of Pakistan

This study is an attempt to analyse the determinants of private investment in Pakistan over the period 1972-2005. The ARDL co-integration approach is employed to check the existence of a long-run relationship as well as short-run dynamics of investment. The results show that most traditional factors have little or no impact on private investment. These results may support the idea that nontraditional factors such as quality of institutions, governance, entrepreneurial skill, etc., are prerequisites for private investment to flourish. We find partial support for the accelerator principle and the crowding-out hypothesis in the case of Pakistan. However, the hypothesis that the volume of the funds is as important as the cost of the funds used in financing private investment and the McKinnon-Shaw hypothesis are not verified in the case of Pakistan.Private Investment, Growth, Crowding Out, Co-integration

Energy Demand in Pakistan: A Disaggregate Analysis

This study examines the demand for energy at disaggregate level (gas, electricity and coal) for Pakistan over the period 1972-2007. Over main results suggest that electricity and coal consumption responds positively to changes in real income per capita and negatively to changes in domestic price level. The gas consumption responds negatively to real income and price changes in the shortrun, however, in the long-run real income exerts positive effect on gas consumption, while domestic price remains insignificant. Furthermore, in the short-run the average elasticities of price and real income for gas consumption (in absolute terms) are greater than that of electricity and coal consumption. The differences in elasticities of each component of energy have significant policy implications for income and revenue generation.Pakistan, Energy Demand

Collaborative spectrum sensing optimisation algorithms for cognitive radio networks

The main challenge for a cognitive radio is to detect the existence of primary users reliably in order to minimise the interference to licensed communications. Hence, spectrum sensing is a most important requirement of a cognitive radio. However, due to the channel uncertainties, local observations are not reliable and collaboration among users is required. Selection of fusion rule at a common receiver has a direct impact on the overall spectrum sensing performance. In this paper, optimisation of collaborative spectrum sensing in terms of optimum decision fusion is studied for hard and soft decision combining. It is concluded that for optimum fusion, the fusion centre must incorporate signal-to-noise ratio values of cognitive users and the channel conditions. A genetic algorithm-based weighted optimisation strategy is presented for the case of soft decision combining. Numerical results show that the proposed optimised collaborative spectrum sensing schemes give better spectrum sensing performance