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An interview with Milton Friedman in 1996 ‐ presents his reflections on some of the important issues surrounding the evolution of, and currrent debates within, modern macroeconomics. A world‐renowned economist and prolific author since the 1930s, Milton Friedman has had a considerable impact on macroeconomic theory and policy making. Associated mostly with monetarism and the efficacy of free markets, his work has ranged over a broader area ‐ microeconomics, methodology, consumption function, applied statistics, international economics, monetary theory, history and policy, business cycles and inflation. In the interview discusses Keynes’s General Theory, monetarism, new classical macroeconomics, methodology, economic policy, European union and the monetarist counter‐revolution.

The purpose of this paper is to examine liquidity risk in Pakistani banks and evaluate the effect on banks' profitability.

Data are retrieved from the balance sheets, income statements and notes of 22 Pakistani banks during 2004‐2009. Multiple regressions are applied to assess the impact of liquidity risk on banks' profitability.

The results of multiple regressions show that liquidity risk affects bank profitability significantly, with liquidity gap and non‐performing as the two factors exacerbating the liquidity risk. They have a negative relationship with profitability.

The period studied in this paper is 2004‐2009, due to availability of the data. However, the sample period does not impair the findings since the sample includes 22 banks, which constitute the main part of the Pakistani banking system. Moreover, only profitability is used as the measure of performance. Economic factors contributing to liquidity risk are not covered in this paper.

This is the first paper addressing the liquidity risk faced by the Pakistani banking system. Past researchers and practitioners have not given the proper attention to liquidity risk. This paper helps in understanding the factors of liquidity risk and their impact on the profitability of the banking system. The authors emphasise contemporary risk managers to mitigate liquidity risk by having sufficient cash resources. This will reduce the liquidity gap, thereby reducing the dependence on repo market.

This paper presents an integrated overview of the empirical literature on the impact of all forms of unconventional monetary policy on macroeconomic variables and on markets.

This survey covers the findings concerning portfolio rebalancing, signaling, liquidity, bank lending and confidence channels.

The positive effect of QE announcements on stock and bond prices seems to be unified across studies. A contagion effect from US QE to other emerging markets is identified, while currency devaluation is present in most cases for the country that its central bank adopted such policies. Moreover, impacts of non-conventional practices on GDP, inflation and unemployment are examined. The studies presenting weak instead of strong positive effects on inflation are more, and these studies, also, present weak positive effects on GDP growth.

Based on the large body of research on non-conventional action taking, this is the first survey including effects of each country that adopted quantitative easing (QE) measures and that provides results from every methodology employed in order to estimate unconventional practices' impacts.

John Taylor devised a simple monetary policy rule that links the Federal Reserve's policy interest rate with inflation and output targets. This paper compares actual policy rates with the rates that would have been recommended by the basic Taylor Rule for three long periods in U.S. economic history: 1875–1913 (“Pre Fed”), 1914–1951 (“Early Fed”), and 1952–1998 (“Modern Fed”). In addition, the authors develop a more complex version of the Rule to facilitate a comparison of the way in which each monetary authority would have reacted to the economic challenges presented outside its own time period. The empirical evidence suggests that Modern Fed would have reacted more promptly and appropriately to inflation and output problems outside its time period than either Early Fed or Pre Fed, and that the movement of interest rates in the Pre Fed period came closer to the corrective policies of Modern Fed than did those of Early Fed.

We would like to thank C. Y. Chen, Wenchih Lee, two anonymous referees and the seminar participants at the 2000 FMA annual meeting for their helpful comments and encouragement. All of the remaining errors are our responsibility.

The purpose of this paper is to examine modern monetary policy as practiced and promoted by the officials of Central Banks, with the Federal Reserve Bank of the USA and the Bank of Japan in leading roles.

Modern monetary policy is assessed for its rhetoric and its philosophies steeped in Keynesian traditions. The fallacies of relying on patently incorrect economic theory with specific critique on the assumption that saving is equal to investment (S=I) is exposed in the policy failures of themes such as quantitative easing, approaching the zero bound, wealth effects, the liquidity trap, forbearance lending and an unwavering belief in the power to inflate. An alternative credit theory is presented and discussed to explain the accumulation of monetary interventions in the modern banking environment. The credit theory is further expanded to evaluate an economy in distress as a result of an accumulation of monetary stimulations against a background of the philosophies of the Austrian school of economics.

Three decisive monetary policy outcomes are identified and substantiated in the Austrian philosophy of laissez faire; the probable outcome of modern monetary policies in deflationary stasis; and the destructive outcome of extreme monetary and fiscal interventions resulting in a hyperinflationary depression and destruction of the money unit.

The conceptual framework and content of the paper are mostly original and will contribute to the study of political and monetary economics.

The aim of this paper is to explore and discuss the causative factors of the current financial crisis from an Islamic perspective. This paper also examines Islamic finance as an alternative financial system and a potential long‐term solution to financial instability.

The paper provides descriptive, analytical and comparative analyses.

The paper offers insights into the causes of the current international financial crisis. It highlights an alternative and a solution to this dilemma in the form of Islamic finance and stresses the stability of the Islamic finance system.

The findings presented in this paper can be used by policy makers, regulators and practitioners in both the Islamic and conventional financial sector as they provides insights into factors that can insulate the market from future crisis. However, to expect a wholesale transformation to an Islamic financial system is idealistic.

This paper contributes to the understanding of Islamic finance principles and its value as a solution to the current and any future financial crises. A highly original conceptual idea is used in the metaphorical comparison to the Tower of Babel. The findings of this research will be of interest to western and Islamic financial practitioners, policy makers and academicians.

The purpose of this paper is to review monetary policy options in countries assumed to be suffering from two common economic problems: deficient private demand and high and rising public debt.

The analytical approach assumes that relevant authorities have decided that new money creation is necessary to address their economic problems. The paper asks the question: how should this new money creation best be deployed to create the required economic stimulus in the context of rising public debt?

The first finding is that the latest rounds of “quantitative easing” in the USA (QE2) and Japan are likely to be inefficient, largely ineffective and have adverse side‐effects, and that in periphery countries the risk of debt default is being increased by current defensive policy settings. The second finding is that the policy of financing budget deficits by printing new money is likely to be more effective (than “quantitative easing” and current Eurozone policy) in raising demand, output and employment without adding unnecessarily to already high levels of public debt.

There are very substantial practical policy implications, involving a potential change of monetary policy strategies for two of the world's largest economies and for Eurozone periphery countries. Post‐earthquake reconstruction in Japan could be financed in the manner recommended in this paper.

The originality/value lies in demonstrating that current monetary policy orthodoxy is misplaced, and that an alternative policy strategy has been overlooked and is likely to be more effective.

The purpose of this paper is to appraise the effectiveness of monetary policy actions in variant market conditions for Islamic stocks. These stocks offer ground for a natural experiment as they have restrictions on the line of business and their distinguished capital structure does not allow them to combat the liquidity crisis through the use of leverage.

The paper uses the quantile regression approach for a multi-country sample of Islamic stock indices to assess the impact of domestic as well as US expansionary monetary policy on stock returns of Islamic indices at various locations of distribution of returns.

It is found that, at lower return levels, an expansionary monetary policy has a negative effect on the returns. In other cases, there is no significant impact of policy rate change on index returns.

It is more appropriate to use firm level data of Islamic stocks instead of stock indices. However, the information regarding index constituents is not publicly available.

The paper offers useful information to investors and policy makers. It shows that central banks should improve their credibility for monetary policy to be effective and their policies must be designed keeping in view the strong impact of US rate on global monetary environment.

This paper provides first empirical evidence of the impact of discount rates on the returns of Islamic stocks in different market conditions.

This paper aims to highlight the new regulatory framework established by Basel III.

This paper provides a critical review of the existing literature concerning bank supervision while providing an overview of the transition from Basel I to Basel III rules and critical appraisal of the current regulatory framework. Review of the existing literature.

Basel III introduces new measures in favor of bank stability and in order to mitigate the propagation of financial shocks. But on the other hand the new regulatory framework adds an extra burden to banks’ business plans affecting credit policies and thus the real economy. Another issue that is not properly addressed is the rising of financial innovations that are able to pass by the new regulations. Overall Basel III rules are moving to the right direction but need to stay always up-to-date in order to catch up with the modern ever-evolving financial system. Pros and cons. Need for improvement.

The paper presents an up-to-date review of Basel rules with future prospects.

The purpose of this paper is to examine the effects of bank mergers on systemic and systematic risks on the relative merits of product and market diversification strategies. It also observes determinants of M&A deals criteria, product and market diversification positioning, crisis threshold and other regulatory and market factors.

This research examines the impact and association between merger announcements and regulatory reforms at bank and system levels by investigating the impact of various bank consolidation strategies on firms’ risks. We estimate beta(s) as an index of financial institutions’ systematic risk. We then develop an index of the estimated equity value loss as the long-rum marginal expected shortfall (LRMES). LRMES contributes to compute systemic risk (SRISK) contribution of these firms, which is the capital that a firm is expected to need if we have another financial crisis.

Large acquiring banks decrease systemic risk contribution in cross-border M&As with a non-bank financial institution, and witness profitability (ROA) gains, supporting geographic diversification stability. Capital requirements, activity restrictions and bank concentration increase systemic risk contribution in national mergers. Bank mergers with investment FIs targets enhance productivity but impair technical efficiency, contrary to bank-real estate deals where technical efficiency change accompanied lower systemic risk contribution.

Financial institutions are recommended to avoid trapped capital and liquidity by efficiently using local balance sheet and strengthening them via implementing models that clearly set diversification and netting benefits to determine capital reserves and to drive capital efficiency through the clarity on product–activity–geography diversification and focus. This contributes to successful ringfencing, decreases compliance costs and maximises returns and minimises several risks including systemic risk.

Policy implications: the adversative properties of bank mergers in respect of systemic risk require strict and innovative monitoring of bank mergers from the bidding level by both acquirers and targets and regulators and competition supervisory bodies. Moreover, emphasis on regulators/governments intervention and role, as it provides a stabilising factor of the markets and consecutively lower systemic risk even if the systematic idiosyncratic risk contribution was significant. However, such roles have to be well planned and scaled to avoid providing motives for banks to seek too-big-too-fail or too-big-to-discipline status.

This research contributes to the renewing regulatory debate on banks sustainable structures by examining the risk effect of bank diversification versus focus. The authors aim to address the multidimensional impacts and risks inherent to M&A deals, by examining the extent of the interconnectedness of M&A and its implications within and beyond the banking sector.