Departures of asset prices from levels implied by economic fundamentals can lead to inappropriate investments that decrease the efficiency of the economy by diverting resources toward economic activities that are supported by the bubble (for example, see Dupor, 2005). For example, during the bubble in tech stocks in the late 1990s, there was overinvestment in some types of high-tech infrastructure.
Similarly, the bubble in housing prices led to too many houses being built. These distortions to activity across sectors of the economy are a drag on efficiency and hence are a matter of concern above and beyond fluctuations in overall economic activity and inflation. 4  See, for example, Mishkin (1991) and Kindleberger (2000).