Therefore, equity prices have an impact on business fixed investment, a major driver of our economy. Finally, equity markets are of interest to policy makers because we have a responsibility for macro-stability. We have seen in other economies that bubbles and busts in financial markets can create unsettled conditions that affect real economic activity.
Therefore, maintaining healthy market conditions are of concern to policy makers. The questions I have with respect to equity markets go to the issue of valuation and the wealth effect. Economists propose numerous approaches to determining the “correct” level of equity prices.