Comparative Analysis of Afghanistan and Pakistan Central Banks Monetary Policy
It has become standard practice to explain the conduct of monetary policy using reaction function that associate the interest rate with inflation and output. (Bank, Research department, 2016) Explained that Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency. Monetary policy uses a variety of tools to control one or both of these, to influence outcomes like economic growth, inflation, exchange rates with other currencies and unemployment. Where currency is under a monopoly of issuance, or where there is a regulated system of issuing currency through banks which are tied to a central bank, the monetary authority has the ability to alter the money supply and thus influence the interest rate (to achieve policy goals). The beginning of monetary policy as such comes from the late 19th century, where it was used to maintain the gold standard. (Bank, Research department , 2016).
