1. Norges Bank Monetary Policy AssetPriceDynamics Venastul 2008 Research Department 1 Fundamental and non-fundamental Asset Price Dynamics: Where do we stand? Workshop 14-15 February 2008, Norges Bank, Venastul Øyvind Eitrheim Disclaimer: The views expressed in this introduction do not necessarily reflect those of my colleagues or the official views of Norges Bank.

2. Norges Bank Monetary Policy AssetPriceDynamics Venastul 2008 2 Research Department Fundamental and non-fundamental Asset Price Dynamics: Where do we stand? The distinction between fundamental and non-fundamental asset price dynamics relates to portfolio diversification Historically, we have observed low correlation across national equity markets In recent years, we have observed stronger co-movement in returns and liquidity Also, there has been increasing interest in the joint behaviour of international equity markets, forex markets and, in particular, housing markets

3. Norges Bank Monetary Policy AssetPriceDynamics Venastul 2008 3 Research Department Co-movement and portfolio diversification The ”fundamental” question... –is the increased syncronication across markets driven by fundamentals (a permanent change)? –...or a non-fundamental effect caused by a temporal increase in co-movement in recent years? e.g. due to the IT bubble that built up in several countries during the 90s until first half of 2000 [cf. e.g. Brooks and Del Negro (Fed St.Louis WP, 2002)] important question both for portfolio managers and policy makers this workshop touches upon these issues and their policy implications

4. Norges Bank Monetary Policy AssetPriceDynamics Venastul 2008 4 Research Department

5. Norges Bank Monetary Policy AssetPriceDynamics Venastul 2008 5 Research Department

6. Norges Bank Monetary Policy AssetPriceDynamics Venastul 2008 6 Research Department Three Norwegian financial crises

7. Norges Bank Monetary Policy AssetPriceDynamics Venastul 2008 7 Research Department Workshop program Session I: Bubbles in the US stock and real estate markets Session II: Investors behaviours and modelling of stock prices and volatility Session III: Evidence on bubbles from the European stocks market and the Singapore Stock market and monetary policy, also touch upon monetary policy and currency crises, which does not receive much attention here Session IV: The final session investigates how to deal with bubbles, both from the viewpoint of market participants and from an inflation targeting central banks point of view. + Eugene White and Michael Bordo, Rutgers University