Recently in Pakistan inflation rate is moving upward day by day. Targeting inflation is used as an option for the monetary policy as through it there is a possibility of achieving the stability of prices and the growth. Purpose of this study is to evaluate the policy of inflation targeting in Pakistan and to investigate whether policy of inflation targeting leads to higher exchange rate volatility. For evaluating the policy of inflation targeting, yearly data from 1970 to 2019 has been used in the VAR model, and for investigating the volatility in exchange rate, monthly data from 2000 to 2019 has been used in GARCH (1, 1) model. Results suggest that the policy of targeting inflation through interest rate as an instrument has positive impact on the control of inflation and the output level of the economy as well the volatility in inflation leads to higher volatility in exchange rate. Supervisor:- Dr. Hafsa Hina