I S Monetary Policy Necessary for the Economic Development of Less Developed Countries with Special Reference to Pakistan

In this paper, observed that impact of monetary policy on development of under developing country like Pakistan. For this purpose, we have utilized the OLS model and taken data from 1982 to 2009. Our results are showing that there is negative association between monetary policy and inflation and there is positive association with GDP and Bop. The most effected recommendations are that for better growth there is need of best favorable investment climate for appropriate interest rate, liquidity management and money market. Figure 1: Expansionary monetary policy. Citation: Najaf R (2017) I S Monetary Policy Necessary for the Economic Development of Less Developed Countries with Special Reference to Pakistan. Bus Eco J 8: 289. doi: 10.4172/2151-6219.1000289


Introduction
Monetary policy is way that tells us that how can be maintained economic growth. It has influenced on economic growth, price stability and BOP. According to act 1958, central bank made polices of monetary policy. In simple words, and monetary policy is such a process, in which central bank and monetary authority of that country control supply of money. Since 1970, Fiscal policy has generally been formed after monetary policy. Most of studies had been proved monetary policy as contractionary. Expansionary monetary policy diminishes the worth of currency ( Figure 1). Mostly, monetary policy is generally associated with availability of credit. Monetary policy has main tools are short term interest rate and another main tool is bank reserves. In many countries, there are two types of monetary policy 1) decisions about coinage 2) decisions to print money. Central banking system was set up in 1890 and after this point central bank is known as last resort.
Every year state bank of Pakistan makes its monetary policy and rules and makes unchanged policy rate. In August CPI rate was 5.75%. After deliberations the committee of SBP has maintained its policy rate at 5.78%. For the proper, decision there held a meeting in Washington and finance minister Shaq Dar were highlight issues our banking system now a days and he also address the major issues, which are facing Pakistani s' nation now a days.
Monetary policy has main role in the development of economy; with the help of monetary policy Government can control inflation and can maintain BOP. The principle objective of monetary policy is to control money. Monetary policy has role to promote economic development and stabilize exchange rate. Monetary policy is acting a main role to control inflationary pressures. Mostly, monetary policy used quantitative and qualitative methods for measuring inflation rate. Open markets are small, therefore, monetary policy is not applied properly.

To Achieve Price Stability
Monetary policy acts as bridge between supplies and demand therefore; it is seen as the best way to achieve price stability. Monetary authorities are taking a better decision for further improvement of poverty of all under developed countries. Monetary policy in the shape of interest rate and interest rate plays an important role for enhancement of poverty level. Government can be completed their planning with help of monetary policy. For instance, they have authority to develop their country to establish infrastructure, transport, chemicals etc. Monetary authority is being focused on interest rate policy because interest rate policy is known as anti-inflationary.

1.
Impact of monetary supply on GDP of Pakistan.

2.
Impact of monetary policy on BOP.

3.
Impact of monetary policy on inflation.

Problem Statement
Is monetary policy in importance for development of less developed country?

Literature Review
The following authors found there is positive association between  [7] viewed impact of monetary policy on development of Russia, for proper results they had taken data from 1999 to 2012 and applied OLS model.
Kogar [8], examined impact of monetary policy on development of Libya, for proper results they had taken data from 1996 to 2008 and applied multi regression model.
Modigliani [9] observed impact of monetary policy on development of Japan, for proper results they had taken data from 1991 to 2001 and applied VECM model.

Methodology
The purpose of this research is to find out impact of monetary policy on the money supply, GDP and economy of Pakistan [10]. For this purpose, taken data from 1982 to 2009 and applied OLS model, here monetary policy is dependent variable and GDP, inflation and BOP are independent variables.

Empirical Results
In this paper, we analyzed impact of monetary policy on GDP of Pakistan, for this purpose, we utilized unit root, Johansen cointegration, regression and VECM model. We conducted unit root test for checking stationary between macroeconomic variables [11][12][13]. Unit root also determine level of co-integration between variables. In Table 1 there are found stationary between variables. while; some are stationary at level 2. After applying unit root test and applied co integration between the variables. After co-integration, it is found that there is long run equilibrium (Tables 3 and 4). There is cointegration between monetary policy and macroeconomic variables.

1.
This paper is trying to expose that central bank of Pakistan has crucial role for development of economy.

2.
The results of regression are showing that central bank of Pakistan has not linkage with the increasing inflation rate.

3.
This paper is also trying to show that central bank monetary policies have best impact on GDP of Pakistan.

4.
Inflation can be improved by providing different policies like employment, improving operations of financial markets.