Changes in bond prices, stock prices, and exchange rates imply movements in the cost of capital and relative prices that influence investment and foreign trade; exchange rate movements also directly affect the prices of goods and services. Finally, asset prices can affect the value of collateral and thus the provision of credit, thereby influencing aggregate spending.
In cases of sharply falling market valuations, these adverse credit-channel effects may even be exacerbated by the deteriorating health of banks and other financial institutions. In sum, asset prices influence the economy in complex and subtle ways over potentially extended periods of time.