Monetary policy is one of the two instruments of ...

Monetary policy is one of the two instruments of economic policy (other budget policy) .Policy policy is primarily the activities of financial institutions, which are carried out by the central bank on money supply. The purpose of these precautions is to achieve a triple stability (3 economic indicators): interest rate, inflation and exchange rate. Monetary policy in the Republic of Azerbaijan is carried out by the Central Bank. Basically, monetary policy is being pursued to control inflammation. The Central Bank regulates inflow by influencing the exchange rate, money supply and interest rates. There are two types of monetary policy: - Soft monetary policy: by increasing the money supply in circulation. For this, the Central Bank cuts interest rates on loans, which in turn encourages agents to take more loans; Makes money by circulating securities; lends more to commercial banks. This policy is aimed at increasing demand and stimulating the economy. Nevertheless, the money supply in circulation contributes to the rise in inflation and, consequently, the decline in the national currency. - The tight monetary policy, on the contrary, is a policy aimed at restriction of inflation. The Central Bank takes measures to reduce the circulation of money in circulation: raises interest rates on loans, sells securities, reduces money in circulation, restricts credit to banks. As a result, the national currency exchange rate is strengthening.

Monetary policy instruments implemented by the Central Bank are also reflected in Article 29 of the Law of the Republic of Azerbaijan "On the Central Bank of the Republic of Azerbaijan". Key instruments of monetary policy are:
• Transactions in the open market;
• Defining interest rates;
• Mandatory reserve norms;
• Refinancing of credit institutions;
• Deposit operations; and so on…

The mechanism of monetary policy transmission means the process of influence (transmission) of the monetary policy decisions adopted by the central bank on the economy. Modern monetary policy rates, loans, exchange rates, stock prices and so on. There are some transmissions channels available. Monetary policy decisions affect the real economy through these channels immediately, but after a certain period of time. Thus monetary policy stabilizes economic activity.

As the European Union is a single economic zone, the direction of monetary policy here is determined by the European Central Bank rather than the national banks of different countries. The crisis that will occur in one of the member states of the single economic zone is also driven by economic recession (as in Greece) and a good policy for a country can damage others. The European Central Bank is pursuing monetary policies that govern the economic well-being of the economic zone. National banks are simply responsible for implementing this policy.

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