However, the macroeconomic consequences of asset price fluctuations are unlikely to have long-lasting and severe consequences for the economy as long as monetary policy responds appropriately. Whether an asset price bubble is occurring or not, as asset prices rise and boost the outlook for economic activity and inflation, monetary policy should respond by moving to a more restrictive stance.
Although it is difficult to quantify this effect with precision, it provides only a partial explanation for the persistent inflation differentials that exist in the euro area. In any case, this effect is a transitory one. It is part of what I have called the adjustment mechanism - in this case, the adjustment to a higher standard of living.