longer run ; finally, the decisions have been taken in a timely fashion, the eurosystem conducting its monetary policy in a forward - looking and pre - emptive way. however, the same figure shows that policy decisions deviate from the taylor rule benchmark. actually, being rule - based doesn ’ t imply being rule - bound and monetary policy decisions are not taken on the basis of mechanical rules. i already mentioned the eurosystem adopted a full - information approach, which besides the usual array of economic and financial indicators also gives a key role to monetary analysis not factored in usual taylor rules. identifying in real time the nature of monetary developments and their implication for future price developments represents however increasing challenges. meeting these challenges has not been straightforward in recent years as the euro area economy was hit by several shocks : financial instability in the aftermath of the stock market collapse in 2000, exceptionally high economic and geopolitical uncertainty between 2001 and 2003, just to name a few. - first of all, we have to identify and account for temporary “ special factors ” or “ distortions ” that may affect monetary developments and blur their information content. to some extent it is the aim of the methodology developed at the ecb which allows for periodic adjustments to measured monetary aggregates in order to account for portfolio shifts which impact the demand for money without any incidence on future inflation. this approach has met with great success in the period 2000 - 2004, allowing the eurosystem to enter an easing cycle despite a rapid growth of m3. - second, and more permanently, it is necessary to disentangle, in monetary and credit evolutions, those which reflect structural and permanent changes from those which simply result from moves in the level of interest rates and the position in the economic cycle. - finally, we must be able to assess whether these developments result from money supply shocks, in which case they clearly entail some risks to price stability, or whether they are caused by money demand shocks that may raise the desired level of money balances without necessarily impacting aggregate demand. such demand shocks can be triggered by structural changes in the behaviour of economic agents or result from portfolio shifts or financial innovations in the context of financial globalisation. there are indeed some signs that a money demand shock occurred at the beginning of the 2000s in the euro area, as illustrated by an apparent structural shift in the trend velocity of money, which summarises the relationship between money, output and the price level. ( see figure annex page 8 )

as more and more firms readjust their prices as economic conditions improve, inflation will respond more forcefully. the model predicts that, after around two and a half years, the cumulative effects of monetary policy on inflation are higher today than in 1970. to sum up, services deepening implies that monetary policy takes more time to be transmitted to inflation, but its effectiveness has not diminished. this is also true for the impact of monetary policy on growth and employment, as you can see on the right - hand side. in a nutshell, there are two opposing forces at work. on the one side, services are, on average, less interest - rate sensitive – that is, the is curve is flatter, which in principle makes a service - based economy less responsive to monetary policy. but because prices are now more rigid on the whole, more of the adjustment in the economy needs to happen through changes in quantities rather than prices. rigid prices are the reason why monetary policy has real effects in the first place. this latter effect may more than offset the reduced interest rate sensitivity, leading to the picture you can see on the right - hand side. 25 the rise of services as a production input and yet, one may correctly argue that, even when taking into account the transmission effect, underlying inflation in the euro area today remains too low, given how much time has elapsed since we launched our monetary stimulus. low inflation appears even more of a puzzle when considering the composition effect, which should cause inflation to rise over time, all else being equal. of course, a number of factors may currently be at play, many of which we do not yet understand properly, such as firms ’ state - contingent pricing decisions. 26 structural transformation is also still ongoing. consider spain. the services sector ’ s share of total employment has increased by more than 8 percentage points, to 78 % since the start of 2008 alone. the unwinding of imbalances is often the catalyst for large reallocations of economic 10 / 16 bis central bankers'speeches activity across sectors, which may further delay the pass - through of policy changes. but i would argue that part of the puzzle may also relate to structural changes within the services sector, which is itself subject to transformation. i would like to highlight two of these changes. first, all services are not made equal. recent research shows that some services industries, mostly those that can be delivered at distance, such as telecommunications and finance, are among the most productive