The present study makes two significant contributions to the extended body of literature in the context of International Finance. First, it forecasts the inflation in an emerging economy by employing a combination of traditional forecasting and Machine learning models to test whether machine learning models outperform traditional forecasting models. Second, it explicitly includes an often-neglected variable i.e. foreign exchange reserves into the forecasting models to ascertain whether its inclusion enhances predictive accuracy. The outcomes of the study revealed interesting findings. It is observed that machine learning models consistently outperform traditional models, with Random Forest and Gradient Boosting are the top performers across different sets of determinants. Moreover, the study unveils that the inclusion of foreign exchange reserves into the models as a determinant has a positive impact on the predictive effectiveness of both traditional and machine learning-based inflation forecasting models.

Almost half the world’s adult population lacks access to a formal bank account and other financial services. Pakistan is no exception and it is also among those countries at the lower end of the spectrum of financial inclusion. However, steps are being taken by government regulators and the private sector to improve access to financial services such as credit, savings, remittances and insurance. The introduction of mobile banking is a notable step in this context. Mobile banking, which comprises mobile wallets and over-the-counter transactions, is rapidly growing around the world and has the potential to reduce barriers to financial inclusion and thus transform economies. The benefits of this platform are even more pronounced for economies with a weak financial architecture and where formal banking entails considerable costs in terms of time and distance. This paper traces the history of mobile banking in Pakistan, studies various models of mobile banking and assesses its current state using the available data to understand how this segment has evolved and transformed conventional banking structures in the country. It also touches on the ecosystem that needs to be built in Pakistan to utilize the full potential of mobile technology.

This paper is a first attempt to measure and analyze inflation uncertainty in Pakistan. It makes several contributions to the literature. In the first stage, using quarterly data from 1976:01 to 2008:02, we model inflation uncertainty as a time varying process using the GARCH framework. In the second stage, we analyze the asymmetric behavior of inflation uncertainty using the GJR-GARCH and EGARCH models. For further analysis of asymmetry and leverage effects, we develop news impact curves as proposed by Pagan and Schwart (1990). Finally we investigate the causality and its direction between inflation and inflation uncertainty by using the bivariate Granger-Causality test to determine which inflation uncertainty hypothesis (Friedman-Ball or Cukierman-Meltzer) holds true for Pakistani data. We obtain two important results. First, the GJR-GARCH and EGARCH models are more successful in capturing inflation uncertainty and its asymmetric behavior than the simple GARCH model. This can also be seen from news impact curves showing a significant level of asymmetry. Second, there is strong evidence that the Friedman-Ball inflation uncertainty hypothesis holds true for Pakistan.

One of the most pressing issues concerning policymakers today is the choice of an exchange rate regime. Despite the intricacies of this problem, monetary authorities could narrow down their list of options if they were to focus on the following principles: full implementation to ensure credibility and synchronization with domestic realities and economic infrastructure. This paper proposes an optimal exchange rate regime for Pakistan based on a historical study of the outcomes and performance of different monetary stances adopted over the last 40 years.

The economic and institutional structure required to successfully adopt and implement an inflation targeting framework (ITF) is often lacking in emerging economies. This paper evaluates these structures both qualitatively and quantitatively for Pakistan’s economy. Although our comprehensive assessment finds that many of the core requirements remain unrealized, the literature and real-time experience argue that an ITF remains possible for emerging economies even in the absence of these conditions. We investigate whether—were the State Bank of Pakistan to adopt an ITF—there exists a stable and significant relationship between the policy rate (monetary tool) and inflation measure (objective). It is important to analyze this bivariate relationship, given the key role of the interest rate in mitigating deviations between actual and target inflation when working within an ITF. To illustrate this relationship, we use Granger Causality test, but our estimates fail to find any significant link between the interest rate and inflation. On the basis of our overall findings, we suggest that Pakistan, in the absence of most of the fundamental requirements of an ITF, is perhaps not yet ready for it.

Pakistan is an emerging market for fintech, with increasing facilitation for digital payments, widespread internet and smartphone penetration, consumer preferences for social media and booming online commerce. Also, the State Bank of Pakistan provides sound regulations, which act as a platform for fintech growth. While regulations are necessary, they might also become a threat for an industry still in its infancy. This paper aims to provide a qualitative assessment of economic, demographic and technological factors that are conducive for the penetration and growth of fintech in Pakistan. A second, but no less important, objective of this paper is to look at the regulatory framework governing fintech and its contribution in making the segment an active or dormant player in the financial services industry.

Amidst the transformative digital age, characterized by groundbreaking innovations and digital integration, this study makes an attempt to explore the multipronged connection between innovation, digital adoption, and fintech. The study employs novel and comprehensive indices, such as the Global Innovation Index, Digital Adoption Index, and the Global FinTech Index to provide a deeper understanding of the intricate relationship between these variables. Through robust exploratory data analysis (EDA), Principal Component Analysis (PCA), and log-linear cross-sectional regressions, the study identifies a strong association of these variables with the income and geographical positioning of the countries and that many themes of digital adoption and innovation are highly complementing in nature. The study also uncovers the bidirectional causality between innovation and digital adoption. However, the linkage of fintech development with these dimensions is less pronounced, particularly when accounting for control variables. Collectively, this research highlights the complexity of these associations in the financial ecosystem, emphasizing their significance for policymaking and fostering economic growth via innovation-driven fintech integration.

This study aims to quantify a possible link between exchange rate pass-through (ERPT) and inflation targeting framework (IT) while focusing on four Asian economies which have adopted IT during the period of 1990-2010 against a control group of non-inflation targeters. By deploying a structural VAR model with non-recursive contemporaneous restrictions imposed on covariance matrix, we identify the impulse response of domestic inflation to the shocks of exchange rate and world commodity prices. The empirical evidence suggests that ERPT is absent in Asian IT and non-IT economies since 1990s. The adoption of IT has not led to change in ERPT for the group of IT economies compared to their own pre-targeting period and the experiences of non-targeters after 2000s which is accepted as the average adoption date. It has been found, however, that the movement in domestic inflation is predominantly explained by world commodity prices in the past and not by the depreciation of local currency in these economies.

Despite the overwhelming literature claiming the environmental benefits of the transition towards a green economy, the evidence favoring these broad claims is still obscure and fuzzy. The present study makes two significant contributions to this important yet unsettled issue. First, we segregate the overall green transition in G7 economies into three different manifestations i.e., Green Energy, Green Industry, and Green Trade, to evaluate their idiosyncratic effects on the environment. Second, we assess the moderating role of financial development in green transition and ultimately in achieving the COP-26 targets. Our findings indicate that the transition towards green energy and the green industrial sector improves environmental quality, and the benefits are more pronounced with a high degree of financial development. In contrast, the transition towards green trade does not help in improving environmental quality and may have some adverse effects; however, financial development could mitigate some of these undesirable effects and help combat carbon emissions. The study emphasizes that policymakers should view financial development as a crucial policy choice to achieve COP-26 targets owing to its benign environmental impact.

The global surge in energy costs poses a significant obstacle for the attainment of price stability by the central banks across the world. This obstacle is further magnified for the economies that adopt an inflation-targeting framework and a flexible exchange rate regime. To overcome this challenge, our study attempts to answer whether inflation targeting can achieve price stability if an exchange rate pass-through exists, especially in the presence of energy price shocks. The study uses secondary data from twenty-one inflation-targeting economies for the period 1997-2020 and applies the non-linear autoregressive distributive lag (NARDL) model to test the hypotheses empirically, considering the possible asymmetries. The results confirm that exchange rate depreciation increases domestic price levels, while exchange rate appreciation reduces them in the long run. The study also finds that rising energy prices contribute to higher inflation in inflation-targeting economies. These findings suggest that inflation-targeting economies face a serious challenge in maintaining their core price stability goal due to exchange rate pass-through especially during energy price shocks. The results invite authorities of IT economies to re-evaluate their policy framework that conveniently ignores exchange rate pass-through by requiring a mandatory floating exchange rate regime.

Tehmina Khan, a 35-year-old, married mother of two, had been working as an assistant professor at a private sector university, University of Management and Information (UMI), School of Business. For the last few years, she had been saving for her retirement via a provident fund (PF) with her employer. The fund had been posting generous returns for years up until July 2018, when it posted earnings well below the inflation rate for the same period. Tehmina wanted to be financially self-sufficient in her post-retirement years and sought no financial dependence on her posterity for that matter. The meagre returns heightened her concerns about the future eventualities, so she had to decide if she should switch to another retirement plan. She needed to explore alternative retirement plans and identify how she could participate in a voluntary pension system (VPS) outside her employer’s PF. Also, if she decided to go ahead with VPS, she had to decide which asset management company(s) and portfolio manager(s) to allocate her savings to. The case comprehensively discusses the details about different retirement benefits and mechanisms and distinguishes aspects of private and public sector retirement plans in Pakistan. Most importantly, the case includes data on the performance of seventeen out of a total of nineteen pension plans operating in Pakistan. It also includes data on asset allocations of pension funds; overall macroeconomic, historical and stock market performances; and yield curve for the last 10 years.

Amidst the rise of Shanghai crude oil futures (SCOF) as a preeminent contender in the global oil arena, this study analyzes its returns and volatility structures in compelling contrast to West Texas Intermediate (WTI) and Brent oil futures (BRENT). A comprehensive examination is conducted using various GARCH models and News impact curves, with the analysis based on daily data spanning from April 2021 to March 2023. The results reveal distinct responses of SCOF when contrasted with WTI and Brent. Firstly, the study finds that SCOF returns exhibit a level of independence from global market movements. Secondly, the assessment of potential asymmetries in the volatility structures displays notable differences among the three markets. Specifically, WTI demonstrates the highest asymmetry, while SCOF exhibits lower asymmetry. These findings imply that SCOF returns exhibit stability and resilience and hold the potential to serve as a formidable hedge against adverse shocks. As investors and policymakers navigate the complex terrain of the global oil market, these insights underscore the strategic advantages and opportunities that SCOF may offer, both in individual investment decisions and broader risk management strategies.

This paper examines the effect of capital account liberalization on stock market crashes using both de jure and de facto measures of capital account liberalization. Using a sample of 64 countries over the time period of 1973-2016, we show that with restricted de jure capital account liberalization, an increase in capital flows leads to a decrease in stock market crashes. On the other hand, with a more liberalized de jure capital account liberalization, an increase in capital flows leads to an increase in stock market crashes. The main finding supports the hypothesis that free, unregulated flow of capital induces more volatility in the stock market and crashes in these markets are more likely to happen. These results are also robust to different sub samples comprising of high-income OECD countries and non-OECD countries and changes in the specification of stock market crashes and different definitions of capital flows.

This paper examines the relative effectiveness of fiscal and monetary policies in achieving the goals of the Inflation Reduction Act of 2022 (IRA), a historic legislation that addresses the energy trilemma of security, inflation, and sustainability, while also promoting growth and employment in the U.S. The IRA relies mainly on fiscal measures, such as subsidies and stimulus packages, which can create deficit or surplus depending on the tax revenues. However, some of the IRA goals, such as inflation, growth, and employment, are largely influenced by monetary factors, which suggests the possibility of using monetary policies as alternative or complementary instruments in the IRA. Using a macroeconomic model, we compare the impacts of fiscal and monetary policies on the IRA outcomes and find that the monetary policy is more effective than the fiscal policy in achieving the IRA objectives, especially in the post-covid period. Our results have important implications for policymakers who need to evaluate the optimal policy mix for the successful implementation of the IRA.

Making a country's Trade environmentally friendly, aka the Green Trade through environmental restrictions, has long been a popular policy choice, especially for the wealthy and trade-integrated economies. However, the effectiveness of such regulations in terms of improved environmental quality is an essential but less investigated research question. In this paper, we analyze, for G-7 countries, the environmental effects of the two competing policy choices, i.e., imposing environmental restrictions on Trade or investing in green technology and inno-vation, by following a rigorous econometric approach. Our results are exciting and, to some extent, contrary to mainstream ideas. We find that the increasing share of Green trade in the overall trade portfolio of G-7 countries is futile and more damaging for the environment by causing an increase in consumption-based carbon emissions. On the other hand, the role of Green technology is highly effective in reducing these emissions in the panel of G-7 countries. These results highlight the effectiveness of the two competing policy choices almost every country must make to protect the climate and stop further environmental degradation.

In the recent years, the concerns raised by environmentalists, over the excessive usage of electricity, particularly in the mining of cryptocurrencies, have caught the attention of the community at large. In this regard, regulators and stakeholders have been reevaluating the costs and benefits of technological development in general, as well as in Fintech, specifically targeting their efforts towards the restoration of the environment. Considering that technology has long been perceived as dual edged sword for the environment, this would be the appropriate time to assess its true role in the environmental improvement, or rather, even deterioration. Therefore, this study attempts to address the question of whether the Fintech development is helping economies towards a smooth transition towards a lower level of carbon and greenhouse gasses emissions. Our results in this aspect are highly encouraging, and confirm that Fintech development can in fact help to reduce the greenhouse gas emissions, after the inclusion of appropriate control variables. Moreover, these results are robust even after the incorporation of the potential endogeneity of Fintech development, by the usage of 2SLS and GMM estimations.

This study aims to bridge the gap that has remained unfilled after the initial scrutiny and reporting of the damaging effects of Covid-19 on financial markets. The study analyzes 10 European stock markets and compares their pre and post covid return dynamics. Our findings are surprisingly pleasant, albeit counterintuitive to some. We observe a quick and unprecedented recovery in the European stock market, yielding significantly higher returns post covid, given a reasonably large holding period. We also observe an alteration and change in the status quo of countries while transmitting or receiving cross-market spillovers.

This paper analyses the risk-adjusted performance of Islamic and conventional equity funds during the COVID-19 pandemic. We show that Islamic equity funds demonstrated differentials in risk-adjusted performance, investment styles, and volatility timing compared to their conventional counterparts. Specifically, the results revealed that Islamic equity funds are more resilient to COVID-19 shock since they outperformed non-Islamic peers during the peak months of the pandemic. The trend continues even when the spread smoothens. These findings confirm the safe-haven properties of Islamic equity funds, which is helpful for investors aiming to hedge pandemic risks. The style analysis reveals investment drift from riskier styles to more prudent options in response to each stage's uncertainties. The results suggest policymakers should further investigate Islamic financial assets and their underlying principles to improve the resilience of economic systems in any future black swan events.

The financialization of the energy market has capacitated energy commodities to affect economic activities unfathomably. Despite the availability of rich literature investigating crude oil and developing its strong ties with economic and financial stability and climate change, little attention has been paid to natural gas (NG or LNG) and its potential to affect economies. Natural gas is not merely an alternative fossil fuel and a substitute for crude oil but it also presents huge advantages in terms of cost and low carbon emission. This study contributes to the literature and provides meaningful evidence on how changes in natural gas futures prices affect the equity returns in G-5 economies using the data covering almost two decades. Our results present a few exciting insights. First, we find that oil and gas prices are weakly correlated and do not reflect the dependence of gas on oil as reported in previous studies. Second, we find that although gas price changes negatively affect equity market returns in the short run, it subsides substantially in the long run. Holistically, our findings identify the hedging potential that natural gas provides to cope with the volatility in crude oil prices. We also assert that substituting oil with natural gas may improve the sustainability and stability of financial markets in G-5 economies.

ESG profiling of a firm reflects its exposure to various environmental, social, and governance factors, which influence the business dynamics and impact the valuation metrics. In this paper, we evaluate the relationship between ESG scores and the target price precision of sell-side analysts. We employ four different constructs of forecast accuracy on a comprehensive sample of firms with analyst coverage in the BRICS between 2011 and 2021. The results demonstrate that the ESG score positively impacts the target price accuracy, and firms with higher ESG scores have lower forecast errors. The findings remained robust even after segregating the sample based on buy, hold, and sell recommendations. Finally, we report that within ESG, environmental and governance factors largely explain the forecast accuracy while the social aspects were insignificant. The results also suggest that the precision of sell-side analysts is persistent across periods. These findings have important implications for investors.