The Effect of Multidimensional Aspects of Monetary Policy of SBP on the Large Scale Manufacture
Abstract
The current study empirically investigated the multidimensional aspects of information pertaining to the monetary policy of the State Bank of Pakistan (SBP). This policy comprises monetary policy statements (MPS) published by Monetary Policy Committee (MPC) and policy rate. Monetary Policy Department (MPD), one of the core policy related departments of the State Bank of Pakistan (SBP), provides informative and analytical support for the formulation, dissemination, and implementation of the bank's monetary policy. The tone and effect of monetary policy communication was investigated on macroeconomic variables, fiscal variables, and financial variables, that is, inflation, policy rate, credit intake, LSM, imports, exports, and trade deficit. The analysis was carried out by using time series data collected from MPS over the time period 2005-2021. The empirical model was estimated by using Granger causality test and Autoregressive Distributed Lag (ARDL) technique. The results showed a significant and positive relationship between large scale manufacturing (LSM) and policy rate and vice versa. The study provided specific evidence to policymakers that would help them to improve and further enhance their transparency and credibility regarding monetary policy formulation. Furthermore, this research would also help the SBP to review the policies and incorporate key components and its imply that the SBP’s adoption of a market-based flexible exchange rate would increase the efficiency of the exchange rate channel used to transmit monetary policy.
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