This study examines the impact of monetary policy using Discount rate, Money Supply and incorporating exchange rate on trade balance and sector groups identified by Pakistan Bureau of Statistic. This study also identified the surplus and deficit sector groups. SVECM (Structural Vector Error Correction Model) is used with long and short-run restrictions to examine the macroeconomic variables shock to trade balance, using annually data of variables from 1980 to 2018. The results for the trade balance in long run shows that the Real exchange rate, Real output, price level has a positive and significant relation. While the money supply has a negative and significant long-run relation to trade balance. The study reveals that discount rate has no long-run relation to trade balance. In short run the trade balance is most influence by the real exchange rate than the money supply and discount rate. While the price level and real output have a weak response to trade balance. The study also finds the four sectoral groups are trade surplus and six are in trade deficit. The study suggest that the monetary policy tools have a significant and positive relation in long-run as well as in short-run with Trade balance. but the real exchange rate is more dominant variable to the trade balance than the other macroeconomic variables which response highly in long-run and in short-run. The study suggest that the policy maker should keep in mind the real exchange rate before further development and planning for the trade balance and preferred the exchange rate stabilization policy for the effectiveness of the monetary policy. Supervisor:- Dr. Atiya Yasmin Co-Supervisor:- Dr. Hafsa Hina