under certain circumstances, either by buying or selling currency, e. g. to restore some order to a market that has become unbalanced or to even out sudden large flows. in both cases, one should of course state the purpose of the intervention. there could also be reason at some point to indicate that the market's pricing has moved significantly out of the region considered reasonable. for instance, this was the case, as i understand it, when the ecb intervened last autumn. in these cases the central bank can take action to " nudge " or reinforce a trend in the market without actually establishing any ceiling or floor. in my opinion, however, one should be restrictive in the use of such interventions. if the trend should turn and move in the opposite direction, the intervention might do more harm than good. is it good for sweden if our currency is undervalued over a long period of time? all experience indicates that this is not so. although an undervalued currency gives the export industry and importcompeting industry a competitive advantage, which may sound positive in the short term, it reduces competition pressure and in the longer perspective it delays the structural transformation necessary when the exchange rate eventually returns to a balanced level. at the same time, the import industry has an uphill struggle, which leads to companies being wiped out in this sector that would have not have collapsed with a correctly valued currency. in addition, major fluctuations in themselves have a subduing effect on developments as the risks increase on all international transactions. this can be counteracted to some extent through hedging, but hedging also has a price that rises as uncertainty increases. the alternative is, of course, a fixed exchange rate, which in sweden's case would be synonymous to adopting the euro. in the short term we have managed perfectly well outside of emu, with lower interest rates and inflation and a higher growth rate than the euro area. however, in a longer term perspective, periods of a wrongly valued krona and major fluctuations in the exchange rate – and we will probably have to live with these – may be a high price to pay. for a small economy with a large foreign trade like sweden this is a development worth considering. some conclusions let me finish where i began, namely by concluding that the economic situation still appears uncertain in essential areas. the main clue is that the american economy will show an upturn, but take a more prolonged path than the v shape

for household ’ s propensity to consume. in the last few years, investments in the business sector have increased quite strongly in volume while it is only just recently that investments in housing construction have started to increase. the strong growth we have seen in recent years is higher than that sustainable in the long term. the riksbank makes the assessment that annual increases in production of 2 - 2. 5 per cent are possible in the long term. the amount that gdp can increase is determined by the increase in productivity and by how much employment can increase. the larger increase in production in recent years is primarily due to there being a lot of unused resources in the economy after the problem years in the early 90s, when there was a substantial drop in production. while the productivity of the business sector has increased, it has primarily been increased employment that has created scope for growth. if we compare with the high - inflation period – the 20 years from the mid - 1970s, we can, however, see that we have had a faster increase in productivity in the past five years. we should not therefore rule out the possibility that we are on threshold of a faster growth in productivity when it investments spread on a broad basis to the “ old economy ” in the same way as has happened in the united states. the strong increase in productivity in recent years has taken place without inflation accelerating. this has surprised many people – for even though the previously high unemployment, indicated that there were a lot of unused resources in the economy, there were many who doubted whether it would be possible for so many to return to the labour market so quickly. month after month, we have seen increases in employment of 80 - 90 000 persons on an annual basis, 70 per cent of which have taken place by an increased supply of labour. flexibility in the labour market has thus exceeded expectations. open unemployment is now down to around 4 per cent, which, while it is higher than that considered normal in the 1980s, is lower than what many people in the early 1990s feared would be normal. stable inflation expectations the stabilisation of inflation expectations at a low level shows that the riksbank ’ s inflation target has attained high credibility. a number of factors have contributed to confirming confidence in the price stability objective. high real wage increases despite moderate nominal pay increases are one factor that has undoubtedly increased the support of wage earners for the price stability objective. the fact that the price stability objective has been confirmed by law has also probably contributed to confirming confidence in