taken into consideration in the annual budget negotiations. in years when fiscal policy has not been used for stabilisation purposes the fiscal impulse, i. e. the contemporaneous contribution to gdp - growth from fiscal policy in a given year, has been close to zero. as is the case in most countries it is also politically easier to increase public expenditure and reduce taxes than the opposite in denmark. however, it is not our assessment that the reliance on a fixed exchange rate and occasional discretionary fiscal policy measures in itself has exacerbated this inherent problem. quite the contrary, the fixed - exchange - rate policy has been instrumental in the significant improvement in danish economic policy that has taken place in the last 10 - 15 years. the danish government, supported by a large majority in the danish parliament, is committed to use fiscal policy if inflationary developments are out of line with the exchange - rate policy. it has been publicly announced that fiscal policy will be adjusted if inflation deviates from the ecb ’ s definition of price stability ( 0 - 2 pct. increase in the harmonised index of consumer prices - hicp ). fiscal measures are taken with due regard for developments in government debt as well as in the current account. indeed, except for 1998 denmark has had a surplus on the current account of the balance of payments since 1990, while there has been a surplus on the government budget since 1997. furthermore and equally important, the fixed - exchange - rate policy has brought structural reforms of the tax and benefit systems and the labour market to the policy forefront as the necessary tools to ensure low unemployment and growth in real income. asymmetric shocks, home - made shocks and exchange - rate policy in denmark a floating exchange rate is often considered useful in order to insulate an economy from certain shocks in a world with nominal wage rigidity and / or limited labour mobility. a fixed - exchange - rate policy can lead to excessive and protracted unemployment in such a world, and adjustment to asymmetric shocks is – at least in theory – an important argument against a fixed - exchange - rate policy. however, the importance of this argument requires answers to the following two questions : 1 ) what causes large positive and large negative output gaps? 2 ) is a floating exchange rate an efficient shock absorber? the danish economy was in severe slump in 1981, reached a peak in 1986, went back into a period of slow growth, bottoming out in 1993, and has grown strongly since and exhausted

note : bundesbank main refinancing interest rate before 1999. minimum bid rate from june 2000. source : bundesbank, ecb and danmarks nationalbank. chart 2a : interest - rate differentials between denmark and germany percent 10 - year government bond yields 3 - mont h int erest rat es source : ecowin. chart 3a : breakdown of danish exports on recipient countries rest of w orld 25 % efta count ries 7 % eu accession count ries 4 % euro area 43 % ot her eu count ries 21 % source : statistics denmark. chart 4a : monthly interventions by danmarks nationalbank, 1987 - 2002 m ill. usd - 1000 - 2000 - 3000 - 4000 - 5000 net buying of f oreign currency source : danmarks nationalbank.