supply. it is explanations of this type that market players are most prone to put forward for short - run exchange - rate fluctuations. the most general flow - related explanation is probably the short - term interest rate differential. textbooks teach that international currency flows and nominal exchange rates are susceptible to differences in current and expected monetary policy. today, when monetary policy throughout the industrialised world is focused on price stability, so that interest rate differentials between countries are tending to decrease, the explanatory power of this variable is presumably weaker. another factor that has been of major importance for nominal exchange rates from time to time is the state of the government finances. high and growing government debt leads to expectations of a suspension of payments or a monetary policy realignment in a more inflationary direction. that in turn results in a depreciation of the exchange rate. the picture in sweden since 1975 the swedish krona has weakened in nominal terms by as much as 90 per cent. but at least half of this depreciation can be explained by sweden ’ s higher inflation. and in this respect there has been a decisive change. we now have the same policy commitment to price stability as the rest of the world. that leaves around 40 per cent of the depreciation to account for. our work at the riksbank suggests that in the 1970s and ’ 80s, the major part of the real exchange rate ’ s weakening can be attributed to deteriorating terms of trade, low gdp and productivity growth compared with the rest of the world and growing external debt. one of the models we have used indicates that about three - quarters of the depreciation stemmed from relatively poorer growth in sweden and about a quarter to worsening terms of trade. the picture in the 1990s looks different. as far as we can tell at present, in the past decade neither productivity nor gdp growth has been poorer than in the rest of the world ( fig. 1 ). so in this respect, too, there seems to have been a change for the better. it is partly against this background that the krona ’ s persistently weak average path in the latter part of the 1990s is surprising. fig 1. tcw index and expected growth difference against other countries 1. 5 1. 0 sweden - tcw countries difference expectations / growth tcw index 0. 5 0. 0 - 0. 5 - 1. 0 - 1. 5 mar - 96 nov - 96 jul - 97 mar - 98 nov - 98 jul - 99 mar -

, pleasant and not so pleasant, but, paraphrasing a woodrow wilson school adage from the time i was here, “ wherever you go, there you are. ” if you are not happy with yourself, even the loftiest achievements won ’ t bring you much satisfaction. 3. the concept of success leads me to consider so - called meritocracies and their implications. we have been taught that meritocratic institutions and societies are fair. putting aside the reality that no system, including our own, is really entirely meritocratic, meritocracies may be fairer and more efficient than some alternatives. but fair in an absolute sense? think about it. a meritocracy is a system in which the people who are the luckiest in their health and genetic endowment ; luckiest in terms of family support, encouragement, and, probably, income ; luckiest in their educational and career opportunities ; and luckiest in so many other ways difficult to enumerate – these are the folks who reap the largest rewards. the only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world, and to share their luck with others. as the gospel of luke says ( and i am sure my rabbi will forgive me for quoting the new testament in a good cause ) : “ from everyone to whom much has been given, much will be required ; and from the one to whom much has been entrusted, even more will be demanded ” ( luke 12 : 48, new revised standard version bible ). kind of grading on the curve, you might say. 4. who is worthy of admiration? the admonition from luke – which is shared by most ethical and philosophical traditions, by the way – helps with this question as well. those most worthy of admiration are those who have made the best use of their advantages or, alternatively, coped most courageously with their adversities. i think most of us would agree that people who have, say, little formal schooling but labor honestly and diligently to help feed, clothe, and educate their families are deserving of greater respect – and help, if necessary – than many people who are superficially more successful. they ’ re more fun to have a beer with, too. that ’ s all