Growth Imperatives of Monetary Policies in Pakistan: Historical Analysis

Abstract

Monetary policy is the major tool with the government authorities in a market economy to monitor the direction and pace of economic activities in relation to employment and aggregate output coupled with rise and fall of price level. This study focused on the key issue of growth imperative in the context of Pakistan's monetary policy, examining its evolution, effectiveness, challenges, and implications for sustainable economic growth. The core objectives of this research are to evaluate the efficiency of Pakistan's monetary policy to promote growth of the economy, to identify the fundamental challenges and limitations of these policies, and to propose informed policy recommendations. It provides a comprehensive historical analysis spanning from 1980 to 2023, utilizing data from the World Development Indicator, International Financial Statistics and the State Bank of Pakistan. The analysis employs E-Views software to ensure robust data handling and applies ARDL. The explanatory variables include investment, money supply, inflation, interest rate, and exchange rate, while the Gross National Product serves as the dependent variable. The analysis indicates that the exchange rate, interest rate, and inflation negatively impact on GNP, whereas money supply and investment have a positively influence on GNP. This study suggests that lower interest rates could reduce borrowing costs, increasing investment and consumer expenditure. High inflation has been demonstrated to reduce real income, resulting in reduced consumer spending and slower GNP development. The research emphasizes the need for a balanced method to monetary policy that reflects both immediate economic stabilization and long-term growth objectives.