Conceptually, the transmission process can be broken down into two stages. Changes in official interest rates first affect financial markets. Those markets react fast. In the next stage, a policy move makes itself felt in the broader economy, thereby exerting the desired influence on consumer prices. That is by no means a straightforward process. And it takes time.
These time lags explain why the Eurosystem adopts a medium-term perspective when shaping monetary policy. Those parts of the European financial markets that are crucial for the transmission of the Eurosystem’s monetary policy are already integrated to our satisfaction. The wholesale market for interbank liquidity in the euro area is now a single European money market.