MONETARY POLICY AND ITS INFLATIONARY PRESSURE IN PAKISTAN

Inflation has always been a central issue of socio-economic policy framework. The mechanism, through which it comes out, is of vital importance to explore for prudent policy formulation. The present study aims at investigating the impact of money supply growth on the rate of inflation in Pakistan. Annually time series data ranges form 1973-2013 is employed for the analysis. The model of the study works out the short-run and the long-run impact of money growth on the rate of inflation in Pakistan. ARDL technique is used, depending upon the time series properties of data that confer mixed order of integration. Diagnostic and stability tests confirm that models are econometrically sound and stable. The results go over the main points; interest rate and money supply are important policy variables for controlling inflation in the long-run while it is the national output level which put downward pressure on inflation rate in the short-run.