Keynes is Back: Global Economic Depression Monetary Policy Operations FY-02 & FY-09 Pakistan´s Economic Scenario

The paper presents economic explanation of recessionary shocks and convergence mechanism within the context of Keynesian and Classical Economic Theory. The paper also discusses the global counter-cyclical measures to avert the recent 2008s economic depression which started from US subprime mortgage and spread all over the European and, then Emerging market economies especially through trade channels. In the context of Pakistan’s economy, the major focus of the paper is on the inflationary stance which is not confined to the monetary growth rather it is a related to a number of internal and external factors. The paper while reviewing the monetary policy measures of the State Bank of Pakistan over the period of 2007-08 & 2008-09, emphasizes the fact that monetary policy measures cannot show fruitful results to arrest inflationary pressures without effective management of supply side improvements and strict administrative price controls in the economy. Moreover, inflation up to the single digit cannot be declined through the use of higher discount rate in the presence of higher cost of living, low pass through of decline in international oil prices to end consumers, higher wheat support price, depreciation of rupee against basket of competitors’ currencies in the economy.