Abstract
Monetary policy is very importance to steer the economy to control higher inflation, boost the economic growth and stabilize the other macroeconomic activities. This study investigated the effectiveness of monetary policy for Macroeconomic stability by structural vector- auto-regressive model. For this purpose, impulse responses and variance decomposition techniques were applied to examine the shocks and dynamic behavior of the variables. The results indicate that the role of monetary policy has a gradual and significant impact on Macroeconomic stability of Pakistan. The aim of restriction method SVAR has been used to describe the impact of highlighted variables i.e., money market rate, money supply and exchange rate. It is institute that exchange rate is more effective in long run, while interest rate and money supply are contemporaneous effects in short run. Further, there is the evidence of price puzzle because the level of prices increased rather than decreased in the short run and is against what generally policy perceives. Keywords: Macroeconomic Stability, Impulse Responses, Structural VAR
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