Impact of Monetary Policy on Inflation

Abstract

This paper investigates to find out the relationship between inflation and monetary policy. The paper support the assertion that inflation in Pakistan is a monetary phenomenon, but changes in money supply does not impact inflation rapidly. The study states that the system does not congregate to equilibrium in reaction to fluctuations in any of the variable.

Inflation is one of the key problem confronted by fewer established countries. In addition to the distortion of income distribution, inflation unpleasantly disturbs the poverty level and prospects of business enterprises. All Central monetary authorities in fewer advanced countries, expresses a monetary policy to control inflation in Pakistan.

There is a lot of empirical studies on monetary policy and inflation are presented which explain their relationship deeply and all of them mostly evaluated the productiveness of monetary policy in controlling inflation in Pakistan. This study fills the breach in the literature by exploring the interconnection of monetary policy and inflation.