Muhammad Ali Nasir

Financial and Economic Stability as ‘Two Sides of a Coin’: Non-crisis Regime Evidence from the UK Based on VECM

Purpose - – The purpose of this paper is to provide a different context for considering issues of financial stability and instability, with reference to economic growth and price stability in particular. Design/methodology/approach - – This paper pursued an empirical exploration of six pillars of financial stability, based on a data set for the UK extending from 1985 (Q1) to 2008 (Q2), through the construction of a vector error correction model, including an impulse response function analysis. Findings - – The findings show a strong association between the financial and economic stability even in a non-crisis regime. This includes, for example, a strong association exists between the stock market and the real economy; exchange rate appreciation may not provide for long-term real economic growth; inflation does not contribute to real economic growth, both the sensitivity of the economy to yields and a significant lag in transitional effects from financial markets to the real sector; a positive role of credit creation within a non-crisis regime; exchange rate appreciation affects purchasing power; and potential points of linkage between sovereign debt activity and general price levels. Research limitations/implications - – The findings should be considered in the context of a concept of the economy as fundamentally dynamic and subject to complex cumulative processes. Practical implications - – The findings indicate there is a role for state oversight and intervention within a non-crisis regime based on the complexity of possible interactions that may undermine financial and price stability, with consequences for their association with economic growth. Originality/value - – The study provides a new perspective for considering issues of financial stability and instability.

Conspicuous consumption, luxury products and counterfeit market in the UK

Abstract The fast growth of fashion brands and the popularity of counterfeit goods has posed certain challenges to the existing and new luxury fashion brand players. This study elaborates on the factors driving the market for counterfeit products in the UK. The data collected by means of survey questionnaires from 306 respondents and empirical techniques including descriptive and inferential statistics (correlation and multiple regression analysis), have shown that the consumers have a negative attitude towards counterfeit luxury products. However, they showed fewer tendencies to seek for a brand whose counterfeit cannot easily be found and preferred to buy a genuine rather than a counterfeit. In terms of frequency of purchase, reversion to counterfeit has negative impact, unlike the tendency to seek a brand whose counterfeit is hard to find. The overall results show that the attitude and acceptance of counterfeit do not greatly prevail in the market. However, about 27% of respondents demonstrated either a positive or a neutral tendency towards counterfeit products, which could have serious implications for the luxury goods market.

A Treatise on Oil Price Shocks and their Implications for the UK Financial Sector: Analysis Based on Time-Varying Structural VAR Model: Oil Shocks and Implications for the UK Financial Sector

In this paper, we examined the association among the energy sector stock, oil prices and stock market on the whole. We also considered the UK position from the net oil exporter to net oil importer and implications of the Global Financial Crises. Employing a Time‐Varying Vector Auto‐regressive framework on monthly data from January 1990 to June 2015 in which the sources of time variation were both the coefficients and variance‐covariance matrix of the innovations, this study found that historically oil price shocks have negatively affected the stock market, however the energy sector stock has always responded positively holding their title as hedge against oil shocks. It was also found that the shift from net oil exporter to net oil importer did not influence the association between the UK stock market and oil shocks much. Including the discrete break and subsampling of series led to controlling for the prior beliefs and agents behaviour in the Pre‐GFC period. It turned out that the GFC had been a game changer and the stock market as well as the energy sector showed a positive and symmetric response to oil shocks. These findings have profound implications in terms of depressed global aggregate demand and oil shocks dynamics in the Post‐GFC world.

A TREATISE ON OIL PRICE SHOCKS AND THEIR IMPLICATIONS FOR THE UK FINANCIAL SECTOR: ANALYSIS BASED ON TIME-VARYING STRUCTURAL VAR MODEL

In this paper, we examined the association among the energy sector stock, oil prices and stock market on the whole. We also considered the UK position from the net oil exporter to net oil importer and implications of the Global Financial Crises. Employing a Time-Varying Vector Auto-regressive (TVSVAR) framework on monthly data from January 1990 to June 2015 in which the sources of time variation were both the coefficients and variance-covariance matrix of the innovations, this study found that historically oil price shocks have negatively affected the stock market, however the energy sector stock has always responded positively holding their title as hedge against oil shocks. It was also found that the shift from net oil exporter to net oil importer did not influence the association between the UK stock market and oil shocks much. Including the discrete break and subsampling of series led to controlling for the prior beliefs and agent’s behaviour in the Pre-GFC period. It turned out that the GFC had been a game changer and the stock market as well as the energy sector showed a positive and symmetric response to oil shocks. These findings have profound implications in terms of depressed global aggregate demand and oil shocks dynamics in the Post-GFC world.

The calendar anomalies on performance and volatility of stock market: the effects of Ramadan on Karachi Stock Exchange

This study attempts to investigate the effects of calendar anomalies (Ramadan effect), a seasonal pattern in the Pakistani equity market. It is believed that the holy month of Ramadan is predicted to effect the behaviour of the Karachi Stock Exchange (KSE) since the environment in the country during Ramadan is different compared to other months since people dedicate more time to execute religious rituals, hence slows down the general economic activity. The observation is based on daily frequencies for a whole decade. The data in this study are the daily KSE 100 index points for ten years running from 1st of January 2001 to 31st of December 2010 all selected from the primary equity market in Pakistan, the KSE. The effects of Ramadan are examined through GARCH and ordinary least square (OLS) models respectively. The analysis draws two conclusions with the first showing that the Ramadan has a minor positive impact on the stock market and the second conclusion states that the stock market shows less volatile behaviour during the holy month of Ramadan.

Macroeconomic Policies Interaction & the Symmetry of Financial Markets’ Responses

Abstract This concise study analyses the symmetry of financial markets’ responses to macroeconomic policy interaction in the United Kingdom. Employing the Vector Auto-regression (VAR) model on monthly data of the British financial sector and macroeconomic policies from January 1985 to August 2008, this study found that the equity and sovereign debt markets showed identical symmetry in response to macroeconomic policy interaction.

Financial stability, wealth effects and optimal macroeconomic policy combination in the United Kingdom: A new-Keynesian dynamic stochastic general equilibrium framework

Abstract This study derives an optimal macroeconomic policy combination for financial sector stability in the United Kingdom by employing a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) framework. The empirical results obtained show that disciplined fiscal and accommodative monetary policies stance is optimal for financial sector stability. Furthermore, fiscal indiscipline countered by contractionary monetary stance adversely affects financial sector stability. Financial markets, e.g. stocks and Gilts show a short-term asymmetric response to macroeconomic policy interaction and to each other. The asymmetry is a reflection of portfolio adjustment. However in the long-run, the responses to suggested optimal policy combination had homogenous effects and there was evidence of co-movement in the stock and Gilt markets.

The unit root problem: Affinities between ergodicity and stationarity, its practical contradictions for central bank policy, and some consideration of alternatives

ABSTRACT The initial focus in this article is the problem of mismatch between policy goals and statistical analysis, based on how data is transformed and processed. This intrinsically raises ontological issues regarding the nature of an economy within which policy is made and to which statistical analysis is applied. These are of general significance to post Keynesians irrespective of the position they take on the specifics of the ergodicity debate. However, they involve some issues that overlap with some aspects of that debate. The problem as posed in this article is specific and involves a practical contradiction regarding central bank policy and the problem of unit roots. The authors then consider some additional ways in which one can go beyond common practice based on the example of Forward Guidance in the United Kingdom and a more institutional approach to post Keynesian analysis.

Brexit associated sharp depreciation and implications for UK’s inflation and balance of payments

Purpose The purpose of this paper is to analyse the implications of exchange rate depreciation for inflation targeting and trade balance of UK in the context of the Brexit epoch. Design/methodology/approach The study employed a time-varying structural vector auto-regression (TVSVAR) model framework in which the sources of time variation were both the coefficients and variance-covariance matrix of the innovations on the data from January 1989 to September 2016. Findings The findings suggest that the depreciation of the Stirling has significant effects on inflation and trade balance in UK in context of Brexit epoch. It also showed that such a depreciation can be helpful in the improvement of external balance as well as steering the inflation to its statutory target. Despite, the inflation targeting, there is strong evidence of a pass-through. Research limitations/implications Research has profound implications in terms of the sharp depreciation of GBP associated with the Brexit outcome. The study is very topical and could be very interesting to the readership of JES as well as wider audience. The study has limitations in a context that the significance of the results and association of the under analysis entities is contingent on the future trade relationships and Channel between UK and EU. Therefore, although there is a lot of uncertainty about the future of Britain trade relationships, this study provides guidance on the importance of exchange rate channel if the similar trade arrangements prevails in the post-Brexit era. Practical implications The research has profound practical implications, using a TVSVAR model in which the relationship among the entities varies over time; it has shown the importance of exchange rate in terms of external balance and inflation targeting. Hence, it has appeal for the practitioners as well as academics. Social implications The research has great social implications. The Brexit is the biggest political and economic event of this era for UK and EU. There are big questions about the relationship between UK and EU in the post-Brexit epoch as well as questions about the future of the European integration. In this context, this study has shown that how the exchange rate could play an important role for the UK economy when its contemporary trade channels prevail. Concomitantly, it has social implications particularly for the European society. Originality/value The research is an original piece of work. It has contributed to the debate on the exchange rate deprecation, external balance and inflation targeting in context of the Brexit associated sharp depreciation of Stirling. It has used a framework, i.e. TVSVAR, which also have unique features in terms of testing the associations among under analysis entities against time.

Forecasting Inflation Under Uncertainty: The Forgotten Dog & the Frisbee

This study is an endeavour to analyse the aspect of adhering to simplicity instead of complexity when one is striving to make a forecast and faced by an unprecedented amount of uncertainty. There is substantial evidence on the exchange rate pass-through and its significant implications for the inflation in the United Kingdom. There is also ample evidence to suggest that the complex models of forecasting are outperformed by simple solutions and the use of heuristics. In that context, it seemed that the Bank of England forecast Post-Brexit is an example of sub-optimal performance of complex models in the face of high tides of uncertainty. In order to illustrate our point further, we employed the data on the consumer price index from Jan 1989 to June 2016. We compared the Post-Brexit inflation forecast by the Bank of England with an ARIMA model and a simple rule which was based on the Bank of England’s own estimates on pass-through due to exchange rate movements, similar in magnitude to the ones associated with Brexit. It showed that the actual path of inflation substantially diverged from the Bank of England’s forecast as the effects of depreciation started to kick in. It implied that in a highly uncertain environment Post-Brexit a better prediction could have been possible by allocating some weight to the effect of sharp depreciation, indeed, that would have been considering the judgment and simplicity.