The European Central Bank (ECB) has already moved interest rates several times since it started to operate in January 1999 and yet we don't know what the magnitude and timing of the effects of its actions actually are. What are the effects on prices and output of a change in the common short-term interest rate? How long do these effects take to materialize? Are there differences in the impact across European countries and regions? Are these differences changing over time? We propose to overcome some of these difficulties by rephrasing some of the questions above in the framework of a dynamic heterogenous panel data model recently proposed by Canova and Ciccarelli (2000).