But one could argue that structural changes in the economy have raised the sustainable level and growth of earnings and lowered the volatility of earnings or otherwise reduced the perceived risk in equities. Such structural changes could, in principle, justify at least a substantial portion of the rise in equity prices.
But the question at issue here is whether policymakers should substitute their judgment about fundamental value for the market’s assessment and use monetary policy to encourage a convergence back to their own estimate of fundamental value. The paper by Bernanke and Gertler at the Jackson Hole conference addressed this question.