. this is an example of an important gradual change that has taken place independently of the financial crisis and which will affect developments in the future. it could perhaps be said that the crisis has contributed towards shedding light upon the increased significance of the emerging economies, as these are now driving the recovery of the global economy. interestingly enough, the composition of products in sweden ’ s exports, which was a disadvantage for sweden when the crisis erupted, has now been turned into an advantage. there is a natural explanation for this : just as purchases of goods of this type ( large amounts of which are exported by sweden ) were easy to postpone, so are they also easy to resume. however, over the last year or so, the krona has appreciated considerably, reducing the impetus previously provided by the weakened exchange rate ( see slide 5 ). at the same time, exports are far from being the only part of the swedish economy that has grown. domestic demand in the form of consumption and investments has developed very this was entirely in line with the riksbank ’ s forecast from february, which also predicted gdp growth of 5. 5 per cent for 2010. the slide shows percentages of goods exports, which constitute about two - thirds of sweden ’ s total exports. bis central bankers ’ speeches strongly. so why is the growth of domestic demand also so high in sweden, compared, for example, with the united states and the euro area? there are several explanations for this. to start with, sweden ’ s public finances are in good shape in an international comparison, which means that there will be no need for fiscal policy tightening in the period ahead. in addition, household saving in sweden was high before the crisis broke out. saving increased further in conjunction with the crisis, presumably due to the general uncertainty prevailing. moreover, household confidence has recovered strongly, as various types of survey have shown. together with relatively sizable incomes, this has made it possible for consumption to recover. a further favourable factor is that, in the end, the swedish financial system was never fully drawn into the financial crisis. towards a normalisation of gdp and inflation – even for the repo rate let me refer back to slide 3, which shows the policy rates of sweden, the euro area and the united states. the policy rates of both the united states and the euro area remain on extremely low levels. this emphasises that the situation in these countries is far from being “ business as usual ”. part of this can be explained

interest rate will actually fall further in the future ; see auclert et al. ( 2021 ). several of the world ’ s large economies are now in a period of slower labour force growth, making it less profitable for companies to undertake major investments. even if savings are falling, companies ’ incentives to invest are declining even further. the prediction is therefore that the global real interest rate will fall for a long time to come. 6 when the inflation target was introduced at the beginning of the 1990s, the riksbank had support from the then prevailing economic crisis, in the sense that inflation was pushed down to a level close to the target, making the task then ‘ only ’ to try to keep inflation at this level. 4 way that companies set their prices and the wage demands that households put forward. the inflation that results from the inflationary price - setting and wage formation confirms expectations and in turn affects the new expectations of future inflation. this gives a new round of effects on price - setting and wage formation, and the high inflation thus becomes a self - generating process. one reason why the high inflation was built into expectations among households and companies was that it was not sufficiently counteracted by the overall economic policy. instead, this policy became systematically too expansionary. at that time, sweden had a fixed exchange rate. the idea was that this would have a disciplinary effect on price - setting and wage formation : if swedish prices and wages increased faster than prices and wages abroad, our competitiveness would weaken, exports would decline and unemployment would increase. however, the domestic inflation trend was nevertheless too strong. when prices and wages in sweden rose faster than those abroad, it created expectations among economic agents that the resulting cost crises and unemployment would be mitigated by writing down the value of the krona, that is, through devaluation. the recurring devaluations then fulfilled the high inflation expectations. in addition, wage formation in itself was not functioning well because of shortcomings in coordination between the social partners. as the aim was to hold a fixed exchange rate, there was no real possibility to dampen the inflation trend through interest rate increases. monetary policy needed to be focused on maintaining the chosen exchange rate relationship. nor was fiscal policy sufficiently tight. this economic environment was a good breeding ground for lastingly high inflation. while the inflation trend in the united states, for example, was broken in the early 1980s in connection with a reorientation of monetary policy under the then head of