Does Monetary Policy Influence Economic Growth In Pakistan

Abstract

The purpose of this analysis is to evaluate the growth-oriented monetary policy components of Pakistan from 1980 to 2021. This investigation implements secondary sources of data. The paper utilized the autoregressive distributed lag (ARDL) model as an analytical technique to assess the short- and long-term dynamics between Pakistan's monetary policy indicators and economic growth. While exchange rates have a growth-oriented effect, broad money (M3) impedes economic expansion, as indicated by our regression analyses. The investigation also looked into the significant and detrimental effects of interest rates. The control variable, trade openness, has a substantial and adverse impact on development, while inflation has a positive impact. The analysis concludes that the government must regulate the broad money, interest rate exchange rate, and liquidity ratio as part of its monetary policy in order to promote national growth. Policymakers should take into account the reciprocal relationship and consequential impact between economic growth and the nominal interest rate.