Monetary Transmission Mechanism and Macroeconomy in Pakistan

Abstract

Monetary policy is considered a vital policy to manage aggregate demand. The main purpose of the analysis is to comprehend the accessibility of channels of the monetary transmission mechanism and to determine the basic monetary channel of the transmission mechanism for Pakistan. The study has applied vector autoregressions, impulse response function and variance decomposition and used time-series data from 1975 to 2015 to validate the interest rate channel, asset price channel, credit channel and exchange rate channel. The findings of the study show that all the channels are vital channels of the monetary transmission mechanism in Pakistan.