(1) Weighted average of United States, Euro area, Japan and United Kingdom, with 2000 GDP weights at PPP exchange rates.
These changes in the financial system – together with the fundamental improvement in the macroeconomic and institutional environment – may have important implications for the way monetary policy is transmitted to the economy: (i) as in industrialised countries, transmission may increasingly occur via market prices rather than changes in quantities and the interest  BIS Review 124/2007  9  rate channel may become more important; (ii) the transmission of monetary policy may be more predictable, thanks largely to the improvement of macroeconomic fundamentals and the stabilisation of inflation expectations; (iii) but financial liberalisation may now make it more difficult to pursue dual objectives in terms of inflation and exchange rates.