This thesis attempts to investigate: i) the linear relationship between inflation and economic growth; ii) the existence of structural break in inflation and growth series and iii) the existence of threshold level of inflation using Smooth Transition Autoregressive Model (STAR) using Time Series data over the period 1972-2013. The analysis indicates the nonlinear relationship between inflation and GDP growth with 9.68 percent threshold level of inflation. There is a positive and significant relation below the threshold level; negative and significant; above the threshold level between inflation and economic growth. Therefore, it is desirable that the central bank and policy makers to keep inflation stable at single digit because it may be helpful for achievement of sustainable economic growth. The findings of this study are also consistent with the study of Khan and Sendji (2000) which suggests 7-11 percent threshold level of inflation for developing countries. Supervisor: Dr. Nasir Iqbal