Stabilization policies and the domestic output response: Evidence from Pakistan

Article history: Received 26 October 2017 Received in revised form 20 January 2018 Accepted 20 January 2018 IS-LM and GARCH models have been used to see the impact of important macroeconomic variables on the domestic output of Pakistan for the periods 1960 – 2012 and 1980 -2010. Money supply (M1 and M2), inflation and US income have a noteworthy connection with the output. The budget deficit and terms-of-trade have a negative impact on output. Immoderate use of money supply and inflation can have devastating repercussions for the overall health of the economy. A sound fiscal policy is essential for realizing the growth potential. Terms-of-trade will improve with exports diversification and low inflation.