around half of total demand. another reason why i believe we can say that the danish economy is now slowly picking up is that the fundamental balances are sound. we have a large current - account surplus and a relatively strong labour market. structural unemployment is low – and only slightly below the current rate of unemployment. interest rates are historically low and underlying prices are stable. on the other hand, house prices have, on average, dropped by 20 per cent since the peak in 2007 and fell by 8 per cent in 2011. turnover is low despite the historically low interest rates, and the market seems to be in a deadlock. given the current interest - rate and income levels, bis central bankers ’ speeches house prices should, in danmarks nationalbank ’ s view, not be as low as they are at the moment. price falls may be self - reinforcing if buyers hesitate, expecting prices to come down even further. so it is difficult to say exactly when the market will turn, but experience from both denmark and abroad shows that once the market begins to recover, it could move fast. an important factor behind the large fluctuations in house prices seen since the mid - 2000s is the structure of housing taxes. if the property value tax in nominal terms is frozen, as it is now, the effective taxation rate declines when prices go up, and vice versa. combined with deferred - amortisation loans, this has contributed to stronger fluctuations in house prices. the same applies to the cap on the increase in land tax. as a result, tax on the large increases in value seen during the boom is being phased in now, when prices are falling, making the decline even stronger. as regards property value tax, the solution is, in principle, simple. freeze the rate of taxation, not the amount in kroner. with the current outlook for the housing market, this will not lead to higher taxes right now. but more appropriate housing taxes will help to dampen fluctuations in the market – fluctuations that are detrimental to society and impede the implementation of economic policy. the large balance sheets of danish households, with high gross debt and correspondingly large assets, also speak in favour of curbing house price fluctuations. * * * it is now around four years since the international financial crisis really hit denmark. in the meantime, it has led to the introduction of five bank rescue packages, each one aimed at solving specific problems. in addition, danmarks nationalbank has made a number of adjustments

with the help of quantitative methods as a basis for investment, their strategy entails both long and short positions in equity. at the same time they are neutral to the stock market as a whole. if we disregard quant methods, this strategy was one of the first to be used by hedge funds, and which, more than 60 years ago, gave them their name. over a number of days in august several quant funds were however forced to close positions and to realise significant losses. they were forced to do so because of the sudden emergence of large price fluctuations in parts of the stock market. the large fluctuations entailed that the quantitative links, which were based on historical data and statistical probability analyses, no longer worked. but what was it that triggered the initial fluctuations in prices? it was probably the case that other types of hedge funds or investors, in order to meet the banks increasing collateral requirements, were forced to reduce their risk exposure. 4 if trading is thin in the shares concerned, that is, if liquidity is weak, the price fluctuations can be significant. that is the normal pattern. the fact that unrest in a market, in this case the mortgage market, spread rapidly to other markets should not surprise anyone who follows financial events in the world. however, on the whole hedge funds have fared well and played a positive role in an efficient market where competition is permitted there will always exist companies who fail in their strategies and default. there are always winners and losers in the financial markets. this time, for example, the winners have been the hedge funds with a short position in the subprime sector, that is, those who have sold securities with subprime content that they have not owned. after the price fall they have been able to acquire the assets at a significantly lower price than they sold them at and have thus earned substantial amounts of money. the losers have had opposite positions or just had strategies in the stock market that did not work. in those instances where individual hedge funds have experienced problems, this has not spread to the financial system overall. as a group, hedge funds have overcome the turmoil relatively well. indices of the hedge funds ’ return fell a few points in august but in september hedge funds as a group once again showed a positive return. during the whole of 2007, the hedge funds have performed better than share indices generally. 5 the reason for this is partly that the hedge funds have not to any great extent been exposed to the subprime sector and partly