But at its core, it is still overheated and needs to be cooled down further. 4 Orderly transmission of monetary policy So far, I have explained how we expect the economy and inflation to develop. In addition, we are also analysing how financing conditions in the euro area are changing. The financial sector plays an important role in the process of monetary policy transmission.
When economists talk about "transmission", we are referring to how the effects of monetary policy measures pass through to the economy and prices, for example via financing conditions. Interestingly, this is another thing that cars and monetary policy have in common – they both need a good transmission. An economy is a complex entity.