but not so much for core services inflation, with housing developments helping to account for the differences in services inflation. other cross - country research suggests that wage developments help explain services inflation dynamics. 14 indeed, services inflation from both the united states and the euro area have been elevated. still, while u. s. housing services inflation has been running higher than the wage - driven nonhousing component, the reverse is true in the euro area. while the cross - country differences during the recent bout of high inflation have emerged more prominently during the disinflationary period, economic growth has been very heterogenous since the onset of the covid - 19 pandemic. generally speaking, the u. s. has experienced a significantly stronger recovery than other advanced economies. as we can see in the left panel on slide 6, real gdp has grown substantially more in the united states since 2021. this is also the case with respect to the larger components of gdp, such as consumption and investment, shown in the right two panels. in explaining why the u. s. has managed to bring down inflation and experience strong economic activity, i believe that the combination of restrictive monetary policy see maria aristizabal - ramirez, dylan moore, and eva van leemput ( forthcoming ), “ what goes up together must not come down together : an analysis of services disinflation, ” forthcoming as an international finance discussion paper ( washington : board of governors of the federal reserve system ). see pongpitch amatyakul, deniz igan, and marco jacopo lombardi ( 2024 ), “ sectoral price dynamics in the last mile of post - covid - 19 disinflation, ” bis quarterly review, march, pp. 45 – 57. - 9together with convex supply curves can help explain these developments. 15 in addition, there are three supply - related factors that have also made significant contributions to the combination of rapid disinflation together with continued and resilient growth. first, there are important factors that have affected total factor productivity differently across countries. for instance, the u. s. has seen greater business dynamism, as reflected in a higher rate of new business formation, shown in the left panel on slide 7. this is important because while most new firms fail, a small share of those that survive grow rapidly and make significant contributions to aggregate productivity. 16 moreover, the pandemic - era business creation

, while fluctuating, has remained around 67 % during this period. given the various other elements of evidence regarding labor market tightness, including survey data on job market conditions and the measured unemployment rate, i find it puzzling that both the workweek and the labor force participation rate have not increased more strongly. one theory, of course, is that household wealth, to which i turn next, might limit the felt need by some potential workers, presumably young people dependent on parents and perhaps older citizens, to participate in the labor market. observations and open issues : equity markets also of interest are valuations in equity markets, the role they should play in policymaking, and whether old relationships have changed. many observers have asked if i think that the federal reserve can or should have a fixed view on the proper level of equity markets. every time i consider this question, i come up with the same answer : the fed cannot target specific levels in equity markets. equity prices are set by the give - and - take of supply and demand, with participants buying and selling based on their own information that shapes their long - term expectations. investors can and should be influenced by several factors, including expectations of corporate earnings, attractiveness of alternative investments ( both domestic and international ), and differing appetites for “ ownership ” risk as opposed to “ creditor ” risk. i believe that the federal reserve ’ s tools - primarily short - term interest rates - are too blunt to attempt to achieve specific levels of stock market valuations. i also believe that policymakers should not necessarily attempt to put their judgments of correct values above those of the market. simply put, equity prices should properly be thought of as a relative price - the value of the existing capital stock relative to that of goods. central banks are not good at fine - tuning relative prices. rather, leave us the responsibility for determining the policy that anchors the general price level in the long run. however, equity markets do have important spillover effects on the real economy. as you know, economists often speak of the “ wealth effect ”, and econometric modeling indicates that consumers ultimately tend to spend about three to four cents for every dollar increment to wealth. in addition, consumer sentiment is tied to feelings of financial well - being. through both of these channels, the so - called wealth effect and the more general influence on consumer sentiment, equity valuations can and do affect consumption and macroeconomic performance. equity markets are also a significant source of