Finally, in the business sector, questions remain about the influence of equity prices on investment spending. In particular, do all equity price movements – whether related to fundamentals or not – have the same effect on investment spending? In conclusion, the issues that I have touched on this morning are of increasing importance for monetary policy.
We no longer have the luxury to look primarily to the flow of goods and services, as conventionally estimated, when evaluating the macroeconomic environment in which monetary policy must function. There are important – but extremely difficult – questions surrounding the behavior of asset prices and the implications of this behavior for the decisions of households and businesses.