effect of emu membership would be the transaction gains as a result of the currency borders disappearing. these are the costs and the inconvenience of exchanging currency when one visits or trades with different countries in the euro area. another concrete advantage is that the administration costs companies have been forced to bear to safeguard against undesirable fluctuations in exchange rates would disappear. it is probably of greater significance for the economy that a single currency would promote competition to the advantage of consumers, who would meet lower prices and thereby have more money left in their purses. when all parties use the same currency unit, it is possible to make price comparisons between countries. competition also facilitates the work on holding back inflation. the emu has particular importance for the scope of the trade. many economists have tried to estimate this gain by looking at the way fixed and floating exchanges respectively affect trade, and they have found very little difference. however, a single currency is not the same as a fixed exchange rate. there are considerable practical and psychological differences. professor andrew k. rose at berkeley in the usa, together with some other economists, has instead compared trade within monetary unions with trade between countries outside of the monetary union, and made adjustments for facts such as monetary unions often sharing the same language, culture and other regulatory frameworks. when professor rose presented such a study for sweden some time ago, he claimed that emu could increase trade and integration by as much as 30 - 50 per cent over the course of a few decades. this could lead to an increase in swedish welfare of over ten per cent in the long term. rose himself admits that the figures are uncertain and other economists believe in much lower figures for trade gains. so what about the disadvantages? giving up one ’ s own currency entails also giving up some of the right to self - determination in economic policy. the instrumental rate would no longer be set in stockholm, but in frankfurt and would reflect the economic situation in a large monetary area. the criticism of a swedish membership of the eurosystem has often concerned the possibility of being able to conduct an independent stabilisation policy under these circumstances. this is based on a supposition that the swedish economy could for some reason become out of synch with the economic developments in the euro are, what is termed an asymmetric shock. an independent monetary policy and currency, in addition to fiscal policy, gives us the opportunity to stabilise our economy ourselves a form of shock - absorber that will

share prices prompted households and the financial institutions that invest households'money to seek out investment alternatives that appeared safer. the downward adjustment of the future outlook itself also resulted in uncertainty. this in turn was compounded by the uncertainty caused by international terrorism and the attempts to deal with this by putting pressure on iraq. this contributed to an increase in the spreads between corporate and treasury bonds as well as to greater volatility in the markets. to counteract the effects of balance sheet and income statement adjustments on the real economy, monetary policy was eased in several countries around the world. at the same time, fiscal policy became more expansionary. the short - term interest rate fell while more subdued inflation prospects and a flight to " safe " investments caused a drop in long - term rates as well. the low interest rates together with the search for safe investments spread to other asset markets. the price of gold increased, and there was a rise in housing prices in several countries as households took advantage of the low level of interest rates to boost their housing consumption. the rising property prices counteracted the fall in the value of households'financial assets. this in turn has led to households in several countries continuing to increase their indebtedness, particularly to finance housing. however, these historically large changes in the asset and debt markets have thus far proceeded smoothly. in spite of the fact that we have seen the biggest decline in share prices since the 1930s, the largest suspension of national debt payments in history ( argentina ), the biggest corporate bankruptcies ( enron, worldcom ), one major terrorist attack and a wave of small ones, the financial markets have been strong enough to handle this. risk diversification and the emergence of new financial derivatives are two explanations for the preserved stability in the financial system. while developments in the real economy have been affected by the balance sheet and income statement adjustments, the business cycle bottomed out at a higher level of growth than was feared, given the considerable imbalances that existed at the height of the bubble in 2000. the economy is now undergoing a slow recovery, driven by the normal cyclical course of events but subdued by balance sheet adjustments and geopolitical uncertainty. balance sheet adjustments will continue, however, as there are still substantial savings imbalances between different regions of the world. at the same time, the risk of war has caused flight to safer assets and thereby resulted in low interest rates. recently, there has been an improvement in earnings and a slight fall in credit