Investigate the Impact of Monetary Policy on Economic Growth of Pakistan

Abstract

The study's main aim was to analyse the impact of monetary policy on Pakistan's economic growth (GDP). The data for the period 1975-2018 is used for the assessment. This study is based on debate among economists among the modern and classical economists, i.e. Keynesians believed that fiscal policy was more helpful to affect the GDP, while monetarists considered monetary policy (MP) as the best tool to tackle the economic crisis. This research employed Autoregressive Distributed Lag (ARDL) techniques to analyse the data. The findings revealed that the money supply (MS) has a helpful and significant impact on the GDP of Pakistan. However, the exchange rate (ER) has a harmful and substantial impact on the GDP of Pakistan during the short run (SR), and has an encouraging and substantial impact on GDP in the long run (LR). While capital formation (CF) and labour force (LF) have an encouraging and substantial effect on GDP. Therefore, the study concluded that monetary policy has a harmful and substantial impact on the GDP of the country because when the money supply increases, it causes a decrease in GDP in Pakistan. The study recommended that the State Bank of Pakistan should control and manage the money supply and try to avoid an increase in the money supply.