From Mr Andrew Smithers.

Sir, all asset bubbles present a risk to the economy, contrary to the views expressed in Frederic Mishkin’s article (Comment, November 10). Asset prices are a key transmission mechanism whereby changes in interest rates affect the real economy. Rising asset prices encourage investment and discourage savings so they boost demand. Asset prices tend to rise when interest rates fall, but the effect is ephemeral, as there is no long-term relationship between asset prices and interest rates.