This paper examines the effectiveness of monetary policy and its transmission channels in Pakistan. Unlike previous studies, this paper considers external variables, including world commodity prices and tradeweighted variables of output and interest rate. This study has employed the structural vector autoregressive (SVAR) model with block-exogeneity and non-recursive identification scheme in modeling monetary policy shocks in Pakistan. The results have revealed that the effectiveness of monetary policy in Pakistan is limited in stabilizing key domestic variables. The shutdown methodology in SVAR has been used to examine the strength of monetary policy transmission channels ie interest rate, credit, exchange rate and asset price channels. The interest rate channel of monetary policy is only effective in the short run while credit channel in both short run and long run. This finding assures the State Bank of Pakistan (SBP) to rely on interest rate channel to control inflation and utilize the credit channel to enhance the output in the long run.