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The IUP Journal of Monetary Economics

November '10
Focus

An important objective of a monetary policy exercise is to ensure stable growth in the economy. Alongside monetary policy, fiscal policy stimulus should also support growth activities. Increased ‘risks’ arising out of monetary instability,

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Relationship Between Budget Deficit and Trade Deficit: A Case Study of Pakistan Economy
The Effect of Uncertainty in Inflation Expectations on Private Investment
Stability of Demand for Money Function by Business Firms in India
The Economic Exchange Rate Exposure: Evidence for a Small Open Economy
Financial Liberalization and the Effectiveness of Monetary Policy on House Prices in South Africa
Evidence on PPP from Middle Income Countries in the Nonlinear STAR Framework
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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.

Article Price : Rs.50

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.

Article Price : Rs.50

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.

Article Price : Rs.50

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.

Article Price : Rs.50

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.

Article Price : Rs.50

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.

Article Price : Rs.50

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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.

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Monetary Economics