Exchange Market Pressure and Monetary Policy: Evidence from Pakistan

The study employs Girton and Roper (1977) measure of exchange market pressure—sum of exchange rate depreciation and foreign reserves outflow, to examine the interaction between exchange market pressure and monetary variables, viz. domestic credit (Reserve Money) and interest rate. Evidence from impulse response functions suggests that domestic credit has remained the dominant tool of monetary policy for managing exchange market pressure. The increase in domestic credit upon increase in exchange market pressure (during 1991–98) is imprudent. The result suggests that fiscal needs/growth objective might have dominated the external account considerations during the span. Post 9/11 there is evidence of sterilised intervention in forex market. Interest rate has also weakly served as the tool of monetary policy during the hay days of foreign currency deposits (1991–98). The finding implies that for interest rate to work as tool of monetary policy vis-a-vis exchange market pressure a reasonable degree of capital mobility is called for.Monetary Policy, Foreign Exchange

The Regulatory and Practical Application of the Lender of Last Resort Pakistan Doctrine in Pakistan

This thesis is divided into four main parts. This thesis examines the operation of the lender of last resort (LOLR) in Pakistan. In order to deter financial crisis, the Central Bank (CB) plays the role of LOLR by taking necessary steps. The operations of LOLR by the Central Banks of the United Kingdom and the United States of America are used as examples to present reforms for the system of Pakistan. Firstly, the research evaluates the significance of the banking industry and examines the importance of LOLR in Pakistan. The thesis further examines the causes of financial crises and evaluates the factors that made LOLR an integral part of the responsibilities of CBs. Secondly, it explains the progression of the role of LOLR along with the emergence of CBs as a financial policy regulator of the State. Furthermore, this thesis analyses the classical and modern theories of LOLR. Thirdly, the case study of KASB bank from Pakistan is used to identify the problem in the current regulatory system. In order to determine if LOLR can be effectively regulated in Pakistan; Northern Rock, Lehman Brothers, and AIG are used as examples. Fourthly, this thesis examines the current laws which regulate LOLR in Pakistan and evaluates its limitations. There are currently two types of banking systems operating in Pakistan, which are commercial and Islamic banks. The latter operates on interest-free banking, which could limit the effectiveness of the LOLR mechanism. Notwithstanding, this thesis mainly addresses the commercial banking sector of Pakistan. The thesis concludes by recommending reforms to the financial system of Pakistan according to the lessons learned from the illustrations of the UK and the USA. It also provides an analysis of the recommended reform proposals

Pass-through of Change in Policy Interest Rate to Market Rates

This paper examines the pass through of the change in policy interest rate of the central bank of Pakistan to market interest rates. The market rates examined include KIBOR, six month deposit rate and weighted average lending rate. More or less complete pass-through of the change in policy rate to KIBOR is observed within one month. However, the magnitude of change in policy rate to deposit and lending rate is not only low but is slow as well. The pass-through to the weighted average lending rate is 47 percent and occurs with a lag of one to one and half year. The pass-through to the deposit rate is only 16 percent and occurs with a lag of one year. The asymmetry between the magnitude of pass-through to lending and deposit rates has served to increase the interest margin of the banks. The slow pass-through to the lending and deposit rate put limits on the effectiveness of interest rate as a policy tool. The pass-through, and hence the effectiveness of monetary policy will increase if all the lending and deposit rates are floating in nature and are quoted as KIBOR-plus and KIBOR-minus respectively.

Reforming Institutions: Where to Begin?

Institutions promote growth—this view now holds firm ground. The task then is to ‘engineer’ growth promoting institutions. Endogeneity characterises institutions, for example, groups enjoying political power influence economic institutions but political power itself is a function of wealth. The question then is: what to reform first? History stands witness that generally the societies with extreme inequality and a heterogeneous population tend to evolve institutions that restrict access to economic opportunities for the poor which in turn constrains economic development. On the other hand societies with greater equality and homogeneous population typically enjoy growth-promoting institutions. Institutional reforms should therefore begin with institutions that serve to create or perpetuate inequality and heterogeneity in the society. We argue that the four different kinds of educational systems in operation in Pakistan are a major source of creating and perpetuating inequality and heterogeneity in the population. Access to a single and common educational system will open-up similar opportunities of higher education and job attainment for all the citizens, thereby reducing inequality. Diverse educational systems promote different sets of beliefs while a uniform system forges beliefconvergence in the society that in turn facilitates agreement on a common set of institutional reforms. Therefore it is the educational system that should be the first to reform. We also argue that in Pakistan, unlike some European countries in the 17th century, neither commercial interest nor fiscal constraints can force the de jure power to reform institutions. Typically, large commercial interests in Pakistan have thrived on favours from the de jure power and therefore have no interest in changing the system. Foreign aid eases the fiscal constraints from time to time relieving government of the need to reform institutions. The thought of a revolution of some kind is still a far cry, the society having no such inclination. The alternative then is the gradual approach preferred by North, Acemoglu and Rodrik. This gradual approach suggests the area of educational reforms.Institutional Evolution, Institutional Change, Human Behaviour

Reforming Institutions: Where to Begin?

No society is devoid of institutions but many live with poor institutions. Institutions promote growth. This is a view now held firmly and widely. The task then is to ‘engineer’ growth-promoting institutions. Endogeneity characterises institutions; for example, groups enjoying political power influence economic institutions, but political power itself is a function of wealth. Given endogeneity, if the task is to design institutional reforms, the question then arises, as to what to reform first. We use the theories of institutional evolution put forth by Douglas North, Darron Acemoglu and Dani Rodrik and the historical experiences of different countries in the context of development (or non-development) of institutions, to determine the starting-point of institutional reforms, if the objective is to design institutional reforms. We argue that in Pakistan, neither large commercial interest nor fiscal constraints can force the de jure power to reform institutions. Typically, large commercial interests in Pakistan have thrived on favours from de jure power, and therefore do not have teeth. Given strategic interests of foreign powers, foreign aid will alleviate the fiscal constraint and the ruler-citizens bargain—though reforming institution in exchange for tax revenue will remain a dream. The country does not seem ready for a revolution either; the thought process that typically precedes revolutions seems to have barely begun. The alternative, that remains, then is the gradualist approach preferred by North, Acemoglu, and Rodrik. Institutional reforms in Pakistan should begin with reform of the educational system—the introduction of a common educational system for all and sundry up to a certain level. Two reasons make us chose the educational system as the candidate to start the process of institutional reform. First, a common educational system will produce a shared value system which, in turn, will reduce the heterogeneity in the society. Lesser heterogeneity in society will then facilitate an agreement over the minimal set of institutional reforms. Second, politicians being myopic, the de jure power is more likely to concede to the demand for reform of the educational system as compared to the demand to, say, put an end to rent-seeking. The former will affect the de jure power a generation hence, while the latter will affect them today.Institutional Evolution, Institutional Change, Human Behaviour

Reforming Institutions : Where to Begin?

No society is devoid of institutions but many live with poor institutions. Institutions promote growth. This is a view now held firmly and widely. The task then is to engineer growth-promoting institutions. Endogeneity characterises institutions; for example, groups enjoying political power influence economic institutions, but political power itself is a function of wealth. Given endogeneity, if the task is to design institutional reforms, the question then arises, as to what to reform first. We use the theories of institutional evolution put forth by Douglas North, Darron Acemoglu and Dani Rodrik and the historical experiences of different countries in the context of development (or non-development) of institutions, to determine the starting-point of institutional reforms, if the objective is to design institutional reforms. We argue that in Pakistan, neither large commercial interest nor fiscal constraints can force the de jure power to reform institutions. Typically, large commercial interests in Pakistan have thrived on favours from de jure power, and therefore do not have teeth. Given strategic interests of foreign powers, foreign aid will alleviate the fiscal constraint and the ruler-citizens bargainthough reforming institution in exchange for tax revenue will remain a dream. The country does not seem ready for a revolution either; the thought process that typically precedes revolutions seems to have barely begun. The alternative, that remains, then is the gradualist approach preferred by North, Acemoglu, and Rodrik. Institutional reforms in Pakistan should begin with reform of the educational systemthe introduction of a common educational system for all and sundry up to a certain level. Two reasons make us chose the educational system as the candidate to start the process of institutional reform. First, a common educational system will produce a shared value system which, in turn, will reduce the heterogeneity in the society. Lesser heterogeneity in society will then facilitate an agreement over the minimal set of institutional reforms. Second, politicians being myopic, the de jure power is more likely to concede to the demand for reform of the educational system as compared to the demand to, say, put an end to rent-seeking. The former will affect the de jure power a generation hence, while the latter will affect them today.Institutional Evolution, Institutional Change, Human Behaviour

Determinants of Interest Spread in Pakistan

Interest spread of Pakistan s banking industry has been on the rise for the last two years. The increase in interest spread discourages savings and investments, on the one hand, and raises concerns about the effectiveness of the bank-lending channels of monetary policy, on the other. This study examines the determinants of interest spread in Pakistan using panel data of 29 banks. The results show that the share of interest-insensitive deposits in total bank deposits is a key determinant of interest spread, whereas industry concentration has no significant impact on interest spread. Furthermore, the ongoing merger wave in the banking industry will limit the options for the savers, with adverse implications for the interest spread. We argue that to maintain a reasonably competitive environment, merger proposals may be subjected to review by an anti-trust authority.Banks, Determination of Interest Rates, Mergers, Acquisitions

Ayesha Siddiqa. Military Inc.: Inside Pakistan’s Military Economy. Karachi: Oxford University Press, 2007. 292 pages. Paperback. Rs 450.00

The book is about business interests of the military in Pakistan. It looks at the political economy of military’s business activities and the personal economic stakes of military personnel as the driver of political ambitions of the armed forces. The author has coined the term ‘Milbus’ for military’s business activities. She defines ‘Milbus’ as ‘military capital used for the personal benefit of military fraternity’. Apart from the Introduction, the book has ten chapters. Chapter 1, ‘Milbus: A Theoretical Concept’, argues that Milbus prevails in most militaries around the world. The extent to which Milbus prevails in a military depends upon the civil-military relations and the strength of political institutions in the country. The chapter outlines six distinct categories of civil-military relations along a continuum of the strength of civil institutions. Polity’s that boast of strong civil institutions, see political forces rule over the country with military playing a subservient role. As the strength of civil institutions declines, militaries penetrate, with the role military becoming complete when the state fails. This is the state where warlords rule. Chapter 2, ‘The Pakistan Military: The Development of Praetorianism’, argues that certain structural lacunae in Pakistan’s political system, dating back to 1947, brought the military to fore. Governments of the day, having failed to promote socioeconomic development, promoted the national security paradigm, to retain their political legitimacy. This brought the military to the forefront. The ascent of military is owed on the one hand to the weak political leadership, that gave the military an opportunity to assert itself, and on the other hand to the authoritarian inclination of civil governments, that compelled these governments to partner with the military. Thus the seed of praetorianism were sown from the very beginning

World Health Organization (WHO)/International Society of Urological Pathology (ISUP) grading in fine‐needle aspiration biopsies of renal masses

Background Utilization of fine‐needle aspiration (FNA) biopsy for the evaluation of renal masses has been increasing at our institution. At times diagnostic material on direct smears is superior to that in the cell block/core biopsy, therefore assigning an accurate nuclear grade in the cytopathology report would provide useful prognostic information. Methods Search of the pathology database identified renal FNAs performed during an 11‐year period (2006–2017). Corresponding core biopsies and resections were identified. Cases with a diagnosis of primary renal neoplasia on FNA, core biopsy, and/or resection were included. Two pathologists reviewed all cases and assigned a World Health Organization (WHO)/International Society of Urological Pathology (ISUP) grade to each FNA, core biopsy, and resection case. Results A total of 162 kidney FNAs were identified. Primary renal neoplasia was diagnosed in 137 cases on core biopsy/resection. Among diagnostic FNAs of clear cell RCC and papillary RCC with core biopsy/resection specimens for re‐review (n = 52), reviewers assigned a concordant WHO/ISUP grade to 83% (43/52) of cases. Among 9 cases with discrepant scores, all had a discrepancy of 1 grade and were undergraded on FNA. Using a two tier grading system (low vs. high grade), reviewers assigned a concordant grade to 88% (46/52) of cases. Among 6 cases with discrepant scores, all were classified as low grade (WHO/ISUP grade 2) on FNA versus high grade (WHO/ISUP grade 3) on resection. Conclusion The WHO/ISUP grade assigned on FNA shows good concordance with subsequent resection/core specimens (83%), with all discrepant cases being undergraded by one grade

Solutions of differential equations in a Bernstein polynomial basis

AbstractAn algorithm for approximating solutions to differential equations in a modified new Bernstein polynomial basis is introduced. The algorithm expands the desired solution in terms of a set of continuous polynomials over a closed interval and then makes use of the Galerkin method to determine the expansion coefficients to construct a solution. Matrix formulation is used throughout the entire procedure. However, accuracy and efficiency are dependent on the size of the set of Bernstein polynomials and the procedure is much simpler compared to the piecewise B spline method for solving differential equations. A recursive definition of the Bernstein polynomials and their derivatives are also presented. The current procedure is implemented to solve three linear equations and one nonlinear equation, and excellent agreement is found between the exact and approximate solutions. In addition, the algorithm improves the accuracy and efficiency of the traditional methods for solving differential equations that rely on much more complicated numerical techniques. This procedure has great potential to be implemented in more complex systems where there are no exact solutions available except approximations