November 8, 2025

The Effect of Exchange Rate on Monetary Policy in Pakistan

Key Points

Monetary policy is influenced by exchange rates, particularly through inflation consumer price changes.
Analysis of time series data reveals that inflation can positively correlate with monetary policy outcomes.
Using auto regressive distributed lags methods, the study outlines varied effects of exports and imports on monetary policy.
Findings suggest that the relationship between aquaculture production and monetary policy is positive, while exports negatively affect it.

Abstract

The main purpose of the present study is to investigate the effect of exchange rate on monetary policy. Time series secondary data used to cover time series from 1990-2019. The study used Auto regressive distributed lags methods(ARDL). Through this study it comes to know how exchangerate related to monetary policy. In this research we use monetary policy as dependent variable Exchange rate (LER) and Inflation consumer price (CPI), Aquaculture production (LAP) and Arms imports (LMPORT),Commercial service exports (LXPRT) as independent variable. Inflation consumer price proxy of the positively correlated with monetary policy in the long run because increase in the inflation consumer price rise the production output of the monetary policy due to increase the availability of investment facilities.Aquaculture production is positive relationship with monetary policy. Export and imports are negative related to monetary policy.

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