Impact of inflation on the monetary policy: case study of Pakistan

The study examined the impact of inflation on the monetary policy by using the time series data of 1980-2014. The data source are economic survey of Pakistan and Federal bureau of statistics. Consumer Price Index is the dependent variable (proxy of inflation) while independent variables used in the study are discount rate and broad money supply M₂. The methodology used in the study is ARDL, which shows long run relation among the dependent and independent variables. The results of ARDL suggests that for Discount rate there should be a negative relation with Consumer price index and this validates the long-run but negative relation of Discount rate with Consumer price index while the broad money supply shows the positive relation with the Consumer price index. Hence, study validates the short-run relation among the Consumer price index, Broad money supply and discount rate.