‘Annex VI. From boom-bust to stabilization: monetary policy and business cycles in Pakistan’ published in the October 2024 report by International Monetary Fund (IMF) titled ‘Article IV consultation and request for an extended arrangement under the Extended Fund Facility [EFF]…’ which ‘investigates the association between monetary stimulus, growth, and inflation’ concludes firstly, ‘…that discretionary monetary policy induces boom-bust inflation cycles and significantly hinders economic growth’, and secondly ‘…underscores the merits of strengthening the role rules play in the monetary policy framework.’

Moreover, the annexure references two articles—‘An Empirical Assessment of Monetary Discretion: The Case of Pakistan’, and ‘Assessing the Role of Money versus Interest Rate in Pakistan.’ In the first paper, published in 2016, and which is in line with the conclusions drawn for Pakistan in the annexure, policy of monetary discretion overall remains out of favour, since ‘in the long run monetary discretion is significantly biased against inflation without creating real growth gains…’, while in ‘the short-term direct impact of monetary discretion on inflation and real growth is mixed…’

In the second paper, which was published in 2020, while analysing three sub-periods (1974-1995), (1995-2009), and (2009-2015) to see ‘…if the SBP should place an increased emphasis on interest rate compared to the broad money…’ indicated that ‘…the full sample from 1974 to 2015 as neither money nor interest rate has a significant role in explaining inflation in Pakistan…’

The paper indicated that on the contrary, seen phase-wise, during the first phase when purely monetary targeting was adopted shows ‘…the role of money in explaining inflation is both significant and quantitatively large as against interest rate…’ that during the transition........

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