A macroeconometric framework for monetary policy evaluation: A case study of Pakistan

This paper attempts to establish the quantitative importance of the various channels of monetary transmission by constructing, estimating and simulating a small macroeconometric model of Pakistan's monetary sector, while using data from the monetary statistics and the monetary survey of the State Bank of Pakistan over 1976–2007. The paper elucidates that the key feature of the study of monetary policy in Pakistan has been preoccupied with neglect either of the demand or the supply function of money and shows how this may lead to imprecise policy actions and mistaken conclusions. Accordingly, we delineate the transmission mechanism of monetary policy by taking into consideration all structural money demand and money supply linkages along with the historically implied identifying assumption in the framework of a marginalized macroeconometric model. The within-sample and out-of-sample evaluations of the model are found satisfactory. The paper presents results of three policy simulations from the estimated model that highlight the impact of alternative monetary policy instruments on the monetary variables under a rule-based and a discretionary policy environment. We find that (i) the SBP subscribes to an unannounced monetary policy rule, (ii) the determination of the policy rate under the announced rule environment stabilizes the monetary sector in that convergence to full equilibrium is smooth and rapid, (iii) a 100 bps reduction in the discount rate, ceteris paribus, decreases money supply by 4.97%, and (iv) the long term implication of reducing (increasing) the reserve requirement ratio on time (demand) deposits, ceteris paribus, is only higher inflation. Finally, we establish that a 100 bps increase in interest rate increases money supply by 3.14% in full equilibrium.     

The effect of merger anticipation on bidder and target firm announcement period returns

This paper examines investors' anticipation of bidder and target merger candidacy and if investor anticipations about candidacy affect the distribution of value between bidder and target firm shareholders. We find that bidder firms can be predicted more accurately than target firms. To investigate how merger announcement period returns are distributed among bidder and target shareholders, we control for different degrees of predictability in bidder and target selection and find that the difference between bidder and target firm three-day cumulative abnormal returns around a merger announcement decreases significantly. Thus, the evidence supports the hypothesis that the asymmetry in investor anticipations about merger candidacy causes disparity in bidder and target firm announcement period abnormal returns.     

Adoption of digital banking channels in an emerging economy: exploring the role of in-branch efforts

The aim of this qualitative study is to analyse the role of in-branch efforts of banks on migrating customers from branch banking to digital banking in India. In-depth semi-structured interviews were conducted with bank executives representing senior management from public and private sector banks in India. Qualitative content analysis technique was used to analyse the data. Varieties of responses received during interviews were clubbed into four main themes based on data reduction, display, and conclusion-drawing processes. In-branch communication with customers, digital transformation of the branch, customer-centric initiatives, and redefined role of branch staff hold the potential to bridge the customers’ migration to digital banking. The paper suggests that the key identified factor in improving digital banking acceptance in India is the requirement of integrated cultural and organisational changes at the bank’s level to gain the customers’ confidence and trust in digital banking.

     

The seeds of a crisis: A theory of bank liquidity and risk taking over the business cycle

We examine how the banking sector could ignite the formation of asset price bubbles when there is access to abundant liquidity. Inside banks, to induce effort, loan officers are compensated based on the volume of loans. Volume-based compensation also induces greater risk taking; however, due to lack of commitment, loan officers are penalized ex post only if banks suffer a high enough liquidity shortfall. Outside banks, when there is heightened macroeconomic risk, investors reduce direct investment and hold more bank deposits. This ‘flight to quality’ leaves banks flush with liquidity, lowering the sensitivity of bankers’ payoffs to downside risks and inducing excessive credit volume and asset price bubbles. The seeds of a crisis are thus sown.     

Firm Characteristics and Stock Price

This study examines the stock price reaction to the internal control reporting required under Section 404 of the Sarbanes‐Oxley Act of 2002 for three distinct groups of firms. After controlling for general stock price movements, we find that stock returns are most negative for firms that delay filing of their internal control reports, continue to be negative for firms with ineffective internal controls, and are positive for firms with effective internal controls. The decrease in stock prices of the first two groups is more pronounced for those with a lower return on assets, higher growth rate in sales, and no prior disclosure of their internal controls weaknesses. Our results indicate that market participants value the reliability of financial information ensuing from Section 404 compliance, irrespective of firm size and debt proportion. Thus, regulators and policymakers worldwide should consider mandating comparable SOX 404 compliance for all publicly held companies to improve the accuracy and reliability of financial reports.     

Economic sanctions and trade diversions in Sudan

The latest episode of the armed conflict between Northern and Southern Sudan erupted in 1983 and ended with the signing of the ＂Comprehensive Peace Agreement （CPA）＂ in 2005. The CPA allows for a referendum on independence for South Sudan in 2011. A similar scenario is possible for Darfur, where an armed conflict broke out in 2003 over demands for greater decentralization and development in the region. The peace agreement between the central government and the Eastern Sudan region continues to be fragile, and the risk of escalation of across the border spillovers of conflicts with Uganda and Chad persists. The U.S., EU, among other global players, is putting pressure on the Khartoum government to change its policies. Economic sanctions are among the tools used by the U.S. government while encouraging others follow suit. This paper investigates the response of the Sudanese economy to eliminating trade flows with the EU in the first phase and with East-Asian countries in the second. It discusses the changes in the macro-indicators, trade variables and welfare measures that would result. Moreover, it assesses the potential trade diversion and resource reallocation due to sanctions in each phase. To simulate these scenarios, detailed economic databases for Sudan, EU, East-Asian region, MENA, COMESA and the rest of the world are needed. For this purpose, GTAP Africa database and the standard GTAP model are employed. The 57 sectors of Africa database are aggregated to ten sectors including： grains and crops, livestock and meat products, mining and extraction, processed food, textiles and clothing, light manufacturing, heavy manufacturing, utilities and construction, transport and communication and other services. Moreover, the database regions are aggregated to six including Sudan, the EU, East Asia, MENA, COMESA and the Rest of the world. Results show that Sudanese trade reallocates to Asia in the first phase and to COMESA and MENA regions in the second. Sanctions exact a devastating toll on the Sudanese economy： GDP declines, trade shrinks and welfare deteriorates. The deterioration in the country＇s trade is mainly in the imports side, which justifies an improvement of the country＇s balance of trade, while welfare losses are derived by a deteriorated terms of trade and allocative efficiency.     

THE DEMAND FOR FATS AND OILS IN CANADA

The overall per capita consumption of fats and oils in Canada has shown only a slight upward trend over the last twenty years. The composition of fats and oils consumed, however, has changed drastically. The most noticeable change was the shift from animal fats to oils and fats of vegetable origin. Specific economic variables have played a key role in determining the nature and direction of consumption for each fat and oil product. Most of the consumption demand changes exhibited over the period are explained by corresponding changes in respective prices and income. Demand for all fats and oils remains in the inelastic range. Income growth had a positive effect on the demand for margarine, butter and especially for shortening, but a negative effect on that for lard. The associated nature of demands for these products, as a group of food items, implies that alternative statistical methods of estimation can yield precise and consistent demand parameters. The parameters obtained from the conventional ordinary least squares (OLS) were verified and refined using Zellner's “Seemingly unrelated regressions” (ZSUR) and full information maximum likelihood (FIML). Reliable demand measures are essential prerequisites for effective agricultural policy and planning. Pendants les vingls ans passés, la consommation canadienne globale par habitant des huiles et des graisses n'a montré qu' une légère tendence ascendante. Mais alors, le montant consommé des diverses genres d'huiles et de graisses a changé beaucoup. Le changement le plus remarquable a eu lieu au niveau d'une nouvelle préférence pour les graisses d'origine végétale au lieu des graisses animales. Des variables économiques spécifiques ont fortement déterminé la nature et la direction de la consommation de chaque produit huileux ou graisseux. Presque tous les changements de demande de consommation pendant cette période peuvent être expliqués par des changements correspondants de prix et de revenus. La demande est inélastique pour toutes les huiles et les graisses. l'acroissement des revenus renforce la demande pour le margarine, le beurre et surtout pour la graisse à pâtisserie mais diminue la demande pour le saindue. Puisque la demande pour ces produits alimentaires est liée, des méthodes alternatives d'estimation statistique peuvent rapporter des paramètres de demande précis et consistants. Les paramètres obtenus de la méthode conventionnelle de ‘ordinary least square’ (OLS) ont été vérifiés et raffinés avec celles obtenus par la méthode de ‘Seemingly unrelated regression’ de Zellner (ZSUR) et par la méthode de ‘full information maximum likelihood’ (FIML). Des sûres mesures de demande sont des requis essentiels à la formulation efficace de la politique et de la plani-fication agricole.     

On black market exchange rate and demand for money in developing countries: The case of Nigeria

This paper examines the hitherto unexplored question of the effects of the black market exchange rate expectations on the domestic demand for money in Nigeria. This study finds that real income and expected inflation rates are the appropriate scale and opportunity cost variables for the demand for money function in Nigeria. The results also suggest that depreciation in black market exchange rate exerts a significant negative impact on the domestic demand for money. A policy implication of this research is that since a depreciation of the black market exchange rate tends to decrease the demand for money, it should be taken into account in the execution of monetary policy. The authors would like to thank an anonymous referee for helpful suggestions which substantially improved the quality of the paper. This research was supported in part by a summer research grant from the College of Business Administration, University of New Orleans.     

Adoption of Food Safety and Quality Controls: Do Firm Characteristics Matter? Evidence from the Canadian Food Processing Sector

This study explores the association between the adoption of food safety and quality assurance practices in the Canadian food processing sector and firm characteristics. A conceptual model is developed recognizing that the relative importance of a firm's incentives to adopt enhanced food safety and quality assurance practices is influenced by the firm's characteristics and activities. Binomial logit models are estimated to explore the association between adoption of various combinations of food safety and quality assurance practices including hazard analysis and critical control point (HACCP). The findings show that the adoption of food safety and quality practices varies widely between individual firms according to, among others, firm size, country of ownership and control, level of innovativeness, level of export orientation, forms of food safety inspection, and the subsector in which the firm operates. Incentives of being able to access foreign markets play an important role in influencing HACCP adoption. La présente étude analyse le lien entre l'adoption de pratiques visant la salubrité et l'assurance de la qualité des aliments au sein de l'industrie canadienne de la transformation et les caractéristiques des entreprises. Nous avons élaboré un modèle conceptuel reconnaissant que l'importance relative des incitatifs qui motivent une entreprise à adopter des pratiques améliorées en matière de salubrité et d'assurance de la qualité des aliments est influencée par les caractéristiques et les activités de l'entreprise. Nous avons estimé des modèles logit binomiaux pour examiner le lien entre l'adoption de diverses combinaisons de pratiques visant la salubrité et l'assurance de la qualité des aliments, y compris les systèmes HACCP (analyse des risques et maîtrise des points critiques). Les résultats ont montré que l'adoption de ces pratiques variait considérablement d'une entreprise à l'autre en fonction, entre autres, de la taille de l'entreprise, du pays de propriété et de contrôle, du degré d'innovation, du degré de vocation exportatrice, des programmes d'inspection de la salubrité des aliments et du sous‐secteur dans lequel une entreprise évolue. La perspective de pénétrer les marchés étrangers joue un rôle important dans l'adoption de systèmes HACCP.