To what extent have the recent financial market trends changed the way monetary policy affects the economy and its price level? This is a crucial issue. Without a fair knowledge of the monetary transmission process, its key variables and the lags involved, central banks will face a tough job when deciding on official interest rates.
For this reason, the Eurosystem closely monitors structural developments in financial markets. We also try to detect how financial innovations could have modified the way changes in short-term interest rates are transmitted to other financial variables, output and inflation.