Monetary policy is an important tool of central bank that is used to stabilize inflation and target growth of country. But in literature role of monetary policy in case of stock prices bubble is widely discussed. From this prospect, this research study finds the impact of monetary policy on stock price bubble for Pakistan economy on the monthly data from 2001-12 to 2019-10. The results of this study indicate that the monetary policy, specifically interest rate play an important role in both boom and burst of stock market and the result also indicate that the increase in interest rate may eliminate the stock price bubbles. However, the negative and significant impact of interest rate shows that when interest rates are high, investors move out of stocks into bonds, and average price-earnings ratios contract. Moreover, the response of the state bank rate indicate that the monetary policy has not been successful at distinguishing between price movements due to fundamentals and speculative price movements due to stock bubbles. Supervisor:- Dr. Saud Ahmed Khan