Impact of Monetary Policy on Economic Growth: Evidence from Pakistan

The objective of this research paper is to investigate the impact of monetary policy on Pakistan's economic growth. We used time series data for the period 1972-2015. The variable of the study were: real gross domestic product, employed labour force, gross capital formation, foreign direct investment, broad money, GDP deflator and exports. The author applied multiple regression method to analyze the data and draw the results. We also used correlation technique to study nature of relationship among variables. We examine long run relationship between monetary policy and the selected variables. We found that monetary policy has significant effect on inflation rate, money supply, employment, gross capital formation, foreign direct investment, saving and other macroeconomic variables. We recommend that central banks should be given free hand to formulate and execute monetary policy but it must have coordination with fiscal policy. In this way, the economy can be managed effectively by economic managers.