This study investigates nexus between stabilization policies, and stock market, in different scenario. For instance, the study assesses interactive effect of the monetary and fiscal policies on the behavior of the stock market, on one hand and volatility of these policies in a volatile stock market, on the other hand. To achieve the aforementioned objectives, we employ quarterly time series data, for a period from 1991 to 2018, of the related macroeconomic indicator and Karachi Stock Exchange (KSE) 100 Index of Pakistan. We estimate ARDL model and find long run relationship between KSE, and monetary and fiscal policies. Moreover, for estimation in volatile condition, we use E-GARCH model and confirm the induced volatility in KSE subsequent to volatility fiscal and monetary policy instruments. The study suggests a dire need for calibration of these policies, when combined in to a single model especially while devising stock market policies, as to examine interaction between these policies, jointly and collectively, and their effects on the stock market’s behavior.  The findings stressed on the policy makers to device policies in line with their joint and collective behavior in a macroeconomic framework.

Keywords: ARDL, E-GARCH, Fiscal Monetary Interaction, Stock Market