Europe has also been affected. European stock prices are now back around the levels seen in 1998 and have fallen by around 30% since the beginning of this year. Nevertheless, to put this fall in perspective, stock prices remain well above 1996 levels, which was when Chairman Greenspan made his comments on irrational exuberance. This holds true even when you adjust for inflation.
Regardless of whether or not stock prices are too high, a decline of the magnitude we have seen is bound to have some impact on the macroeconomy. At the Dutch central bank we have estimated that a sustained decline of 30% would have a cumulative negative impact of just over ½ % on European growth over three years.