INFLATION AND MONETARY POLICY

Abstract

In this paper, the categories of inflation and monetary policy are discussed. True, inflation is generated not only by monetary factors, but also by cost factors, but its effects are ultimately expressed in monetary terms. In order  to link inflation and monetary policy, it is necessary to analyze both categories in more detail. Thus, inflation is treated through its definition, historical development from the first beginnings to the present day. What all definitions have in common is that they claim that inflation devalues money and property. Although there are several theories of inflation, from a synthetic point of view, two theories are the most important: inflation caused by an increase in demand (demand inflation) and cost inflation. True, each of these theories has certain subvariants, while for example the psychological theory believes that the value of money, and even the prices of goods, depend on human behavior and expectations. Monetary policy represents a set of measures undertaken by society in the sphere of monetary factors of creation, cancellation and distribution of purchasing power, that is, in the sphere of monetary finance, which regulate money circulation in order to maintain a dynamic balance. In this paper, the subject of analysis is its definition, tasks  and character of monetary policy. After that, the subject of discussion is how monetary policy affects inflation and  vice versa.