IDEAS home Printed from https://ideas.repec.org/a/pid/journl/v33y1994i2p135-146.html
   My bibliography  Save this article

The Demand for Financial Assets in Pakistan

Author

Listed:
  • Sajjad Akhtar

    (Applied Economics Research Centre, University of Karachi, Karachi.)

  • Sajid Manzoor

    (Applied Economics Research Centre, University of Karachi, Karachi.)

Abstract

In recent years Pakistan has moved to liberalise its financial and capital markets. Consequently the reforms will place heavy demand on the instruments of monetary policy to regulate the working of financial markets. Interest rate policy as a component of monetary policy not only determines the allocation of resources between assets but also within each class of assets. Given the scant research on intra-asset response to intertemporal interest rate movements, the present paper fills the gap by studying the determinants of financial assets and quantifies intra-asset substitutability within a system-wide portfolio framework. Using a simplified version of Brainard and Tobin (1968) model, we explain the asset holdings in terms of wealth and interest rates. We test the model on quarterly holdings of five assets, i.e., saving and fixed deposits, khas deposits, national deposit certificates and defence saving certificates. Asset substitutability is ascertained by single equation OLS, FIML (Iterative 3SLS) and restricted FIML estimation techniques. The system-wide restricted model performs according to a priori expectations. Own interest rate effect is positive and significant in three of the four equations. Five of the six off-diagonals are negative, and three are statistically significant. Saving and fixed deposits exhibit weak complementarity. Khas deposit and national deposit certificates are strong substitutes. The model is also used to decompose the change in portfolio share due to wealth, interest rate and residual components.

Suggested Citation

  • Sajjad Akhtar & Sajid Manzoor, 1994. "The Demand for Financial Assets in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(2), pages 135-146.
    • Handle: RePEc:pid:journl:v:33:y:1994:i:2:p:135-146
    as

    Download full text from publisher

    File URL: http://www.pide.org.pk/pdf/PDR/1994/Volume2/135-146.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Douglas D. Purvis, 1976. "Portfolio and Consumption Decisions: Towards a Model of the Transmission Process," Working Paper 212, Economics Department, Queen's University.
    2. William C. Brainard & James Tobin, 1968. "Pitfalls in Financial Model-Building," Cowles Foundation Discussion Papers 244, Cowles Foundation for Research in Economics, Yale University.
    3. I. U. Mangla, 1979. "An Annual Money Demand Function for Pakistan. Some Further Results," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 18(1), pages 21-33.
    4. W.H. Evans, 1979. "Financial Modelling in Australia," RBA Research Discussion Papers rdp7902, Reserve Bank of Australia.
    5. James Tobin & William C. Brainard, 1962. "Financial Intermediaries and the Effectiveness of Monetary Controls," Cowles Foundation Discussion Papers 63R, Cowles Foundation for Research in Economics, Yale University.
    6. Taylor, John C. & Clements, Kenneth W., 1983. "A simple portfolio allocation model of financial wealth," European Economic Review, Elsevier, vol. 23(2), pages 241-251.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taylor, John C. & Clements, Kenneth W., 1983. "A simple portfolio allocation model of financial wealth," European Economic Review, Elsevier, vol. 23(2), pages 241-251.
    2. Richard Ochmann, 2014. "Differential income taxation and household asset allocation," Applied Economics, Taylor & Francis Journals, vol. 46(8), pages 880-894, March.
    3. Tomoe Moore & Christopher Green, 2005. "Other financial institutions' portfolio behaviour and policy implications: A study of India," International Economic Journal, Taylor & Francis Journals, vol. 19(4), pages 543-562.
    4. Feltenstein, Andrew & Iwata, Shigeru, 2002. "Why is it so hard to finance budget deficits? Problems of a developing country," Journal of Asian Economics, Elsevier, vol. 13(4), pages 531-544.
    5. Weichert, Ronald & Zietz, Joachim, 1986. "Das Verhalten der privaten Haushalte am Kapitalmarkt: Eine empirirische Analyse," Kiel Working Papers 262, Kiel Institute for the World Economy (IfW Kiel).
    6. Thomas I. Palley, 2008. "Endogenous Money: Implications for the Money Supply Process, Interest Rates, and Macroeconomics," Working Papers wp178, Political Economy Research Institute, University of Massachusetts at Amherst.
    7. Ben S. Bernanke & Vincent R. Reinhart & Brian P. Sack, 2004. "Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2), pages 1-100.
    8. Mansur, Alfan & Liu, Yichang & Zaman, Kazi Arif Uz, 2015. "Portfolio Shocks and the Dynamics of the Real Economy of Australia (1980-2014): A Structural Vector Autoregressive Model Approach," MPRA Paper 93992, University Library of Munich, Germany, revised 17 May 2015.
    9. Betz, Frank & Ravasan, Farshad R., 2016. "Collateral regimes and missing job creation in the MENA region," EIB Working Papers 2016/03, European Investment Bank (EIB).
    10. Marc Peter Radke & Manuel Rupprecht, 2021. "Household Wealth: Low-Yielding and Poorly Structured?," JRFM, MDPI, vol. 14(3), pages 1-40, March.
    11. Emmanuel Uniamikogbo & Emma I. Okoye & Arowoshegbe O. Amos, 2021. "Income Diversification and Financial Performance of Selected Deposit Money Banks in Nigeria," International Journal of Applied Management Sciences and Engineering (IJAMSE), IGI Global, vol. 8(1), pages 89-105, January.
    12. Kataria, Karin & Curtiss, Jarmila & Balmann, Alfons, 2012. "Drivers of Agricultural Physical Capital Development: Theoretical Framework and Hypotheses," Factor Markets Working Papers 122, Centre for European Policy Studies.
    13. Jackson, Tim & Victor, Peter A., 2015. "Does credit create a ‘growth imperative’? A quasi-stationary economy with interest-bearing debt," Ecological Economics, Elsevier, vol. 120(C), pages 32-48.
    14. R. Glenn Hubbard, 1990. "Introduction to "Asymmetric Information, Corporate Finance, and Investment"," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 1-14, National Bureau of Economic Research, Inc.
    15. Mohsen Afsharian & Anna Kryvko & Peter Reichling, 2011. "Efficiency and Its Impact on the Performance of European Commercial Banks," FEMM Working Papers 110018, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    16. Amal Aouadi & Sylvain Marsat, 2018. "Do ESG Controversies Matter for Firm Value? Evidence from International Data," Journal of Business Ethics, Springer, vol. 151(4), pages 1027-1047, September.
    17. Caballero, Ricardo J., 1999. "Aggregate investment," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 12, pages 813-862, Elsevier.
    18. Elinder, Mikael & Persson, Lovisa, 2017. "House price responses to a national property tax reform," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 18-39.
    19. Ehrmann, Michael & Fratzscher, Marcel, 2004. "Taking stock: monetary policy transmission to equity markets," Working Paper Series 354, European Central Bank.
    20. Samuel, Cherian, 1996. "The investment decision : a re-examination of competing theories using panel data," Policy Research Working Paper Series 1656, The World Bank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:33:y:1994:i:2:p:135-146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Khurram Iqbal (email available below). General contact details of provider: https://edirc.repec.org/data/pideipk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.