Monetary Policy performs a very significant role in the economic and social development as well as in the controlling of inflationary burdens of a country. This study attempts to evaluate effects of monetary policy on a wide range of different macroeconomic variables. To meet this objective, Vector Autoregressive and Factor Augmented Vector Autoregressive approaches are employed by using data of 145 variables from November 2003 to December 2018 on monthly frequency. For Factor Augmented Vector Autoregressive approach, results are estimated with principal components analysis method and with Partial Least Squares- Structural Equation Modelling method. The results of Vector Autoregressive and Factor Augmented Vector Autoregressive approaches are compared to see which approach shows the plausible results. The results of Factor Augmented Vector Autoregressive are appeared to be more consistent with economic theory as this approach comprised of a large data set whereas Vector Autoregressive delivers improbable results due to mis specified information. Factor Augmented Vector Autoregressive model both with principal components and Partial Least Squares- Structural Equation Modelling method shows the reduction of price puzzle whereas results estimated with Vector Autoregressive approach shows price puzzle appeared strongly. Both of these approaches support theory of money neutrality. Supervisor:- Dr. Ahsan ul Haq Satti