An Introduction to Monetary Policy Framework ofPakistan: Instruments, Objectives, and Mechanism

Muhammad Abdul Rehman Shah, Kashif Raza () and Manzoor Ahmad Alazhari
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Muhammad Abdul Rehman Shah: University of Engineering & Technology, (UET) Taxila, Pakistan
Kashif Raza: The Islamia University of Bahawalpur, Pakistan
Manzoor Ahmad Alazhari: HITEC University Taxila, Pakistan

Pakistan Journal of Economic Studies, 2018, vol. 1, issue 2, 111-129

Abstract: In an economy, a central bank's behavior in formulating monetary policy is characterized by some specific actions. These actions meet the complex process of decisions about how a central bank regulates its policy instruments responding to the macroeconomicenvironment. In the case of Pakistan, the State Bank of Pakistan (SBP) has the mandate to regulate the monetary and credit system through a variety of monetary policy instruments and implementation mechanisms. Despite empirical studies on the subject, themonetary policy mechanism of SBP is comparatively less explored by connecting the policy stances to financial markets. We present a comprehensive review of the framework of monetary policy with modern monetary policy instruments. This study is equally important for researchers, investors, and bankers an insight into procedures of monetary policy of SBP. Similarly, it also helps stakeholders of the corporate sector and SMEs to allocate their resources efficiently after knowing the policy mechanism of the central bank.

Keywords: Monetary Policy; Monetary Instruments; SBP; Central Banking; Pakistan Economy; Policy Rates. (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2018
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