Relationship Between Budget Deficit and Trade Deficit: A Case Study of Pakistan Economy
-- Qazi Muhammad Adnan Hye and Asghar Ali
This study models the relationship between budget deficit and trade deficit by using Autoregressive
Distributed Lag (ARDL) and Dynamic Ordinary Least Square (DOLS) empirical estimation methods. The empirical
results indicate that budget deficit leads to trade deficit in the long run, and it will stimulate it more in the
coming years.
© 2010 IUP. All Rights Reserved.
The Effect of Uncertainty in Inflation Expectations
on Private Investment
-- Yaron Zelekha
Though much research has been done worldwide, the effect of uncertainty concealed in
inflation expectations on private investment is disputed theoretically in the absence of enough empirical evidence
to reach a conclusion. Furthermore, at the same time, traditional investment equations do not reflect the
structural correlation between investment and product, because they ignore the rational expectations theory. This
paper presents a theoretical foundation and an empirical estimation of private investment in Israel, using
Israel's unique data regarding inflation expectations. The results support the hypothesis that uncertainty
negatively affects private investment in Israel. Furthermore, it appears that uncertainty is the most important factor,
next to product, affecting private investment.
© 2010 IUP. All Rights Reserved.
Stability of Demand for Money Function
by Business Firms in India
-- Sherry Bawa and Gian Kaur
The present study is an attempt to test the stability of the demand for money function of business
firms in India over the time period 1980-81 to 2004-05. To perform the stability test, the period of
liberalization has been considered, and the study period has thus been divided into two
sub-periods, viz., 1980-81 to 1990-91 and 1991-92 to 2004-05, i.e., the pre-liberalization period and the post-liberalization
period respectively. The study has been conducted at aggregate level for all non-financial firms and at
disaggregate level for five industrial groups. The study concludes that
the overall demand for money function of the business firms in India has remained stable over time.
© 2010 IUP. All Rights Reserved.
The Economic Exchange Rate Exposure: Evidence for a Small Open Economy
-- Abdul Rashid
This study examines the economic exchange rate exposure of 22 industries in Pakistan. The key findings
of the study are: firstly, the findings show that industry-level share values are statistically significantly
influenced by changes in the Pakistani Rupee (PKR)/US-dollar exchange rate, in general. Secondly, a statistically
significant lagged response of stock values to exchange rate change is reported. Finally, the highly
capital-intensive industries are, however, found to be more exposed to changes in exchange rate in comparison to the
less capital-intensive industries. Further, the robustness of the exchange rate exposure does not fall over time.
© 2010 IUP. All Rights Reserved.
Financial Liberalization and the Effectiveness of
Monetary Policy on House Prices in South Africa
-- Ndahiriwe Kasai and Rangan Gupta
This paper investigates the effectiveness of monetary policy on house prices in South Africa before and
after financial liberalization, with financial liberalization being identified with the recommendations of the De
Kock Commission in 1985. Using both impulse response and variance decomposition analyses performed
on Structural Vector Autoregressive (SVAR) models, the paper finds that irrespective of house sizes, during
the period of financial liberalization, interest rate shocks had relatively stronger effects on house price
inflation. However, given that the size of these effects was nearly negligible, the result seems to indicate that
house prices are exogenous and, at least, are not driven by monetary policy shocks.
© 2010 IUP. All Rights Reserved.
Evidence on PPP from Middle Income Countries in
the Nonlinear STAR Framework
-- Shabbir Ahmad
This study uses the standard Augmented Dickey-Fuller (ADF) linear test and a new nonlinear test
to model the behavior of Real Effective Exchange Rate (REER) for five middle income economies and
an oil-producing country. Using monthly data from 1982M1 to 2006M1, the estimation results
indicate that the new nonlinear test is more successful in detecting the existence of multi-country
Purchasing Power Parity (PPP) than ADF test.
© 2010 IUP. All Rights Reserved.
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