erik thedeen : the krona will strengthen in the long run comments by mr erik thedeen, governor of the sveriges riksbank, at the finance panel on " why is the swedish krona so weak? ", of a seminar organised by sns and the swedish house of finance, stockholm, 22 september 2023. * * * the krona is currently undervalued many, including the riksbank, assess that the krona is currently undervalued if one compares with what is justified by fundamentals, that is, economic developments in sweden compared with those in the rest of the world. for example, the imf says that the krona is undervalued by about 10 per cent, trade - weighted. 1 economic fundamentals thus indicate that the krona should strengthen in the slightly longer term, in real and also nominal terms. if one looks a little further back in time and studies how the value of the krona has changed in relation to the currencies of sweden's most important trading partners, it is also clear that the exchange rate has weakened during periods, and sometimes weakened substantially as during the global financial crisis. but it has also tended to strengthen again eventually. if, on the other hand, we focus on the shorter term, the krona has weakened clearly since the beginning of 2022, both against the dollar and against the euro. just a few days ago, the exchange rate against the euro was at its lowest level ever. how can this be the case when many still agree that the krona should strengthen both in real and nominal terms? those who read the newspapers receive many different suggestions of reasons why the krona has weakened recently. but it is often difficult to deduce whether, and if so, how much, different factors have affected the exchange rate. there is also a tendency to try to understand the movements in the exchange rate in response to specifically swedish factors that seem relevant at the moment : the nato debate, interest - sensitive households, perceived signals from the riksbank and so on. such factors can certainly play some role and push the market slightly in one direction or another. but if we broaden our perspective, we can, for example, note that the norwegian krona has weakened largely in line with the swedish krona. so it is not as simple as everything being explained by, for example, problems in the swedish property sector. financial agents account for most of the k

' s share of public expenditure is made up of payroll costs for staff in schools, day care facilities, healthcare and social security systems, while increased private consumption – triggered by lower taxes – boosts demand for other goods and services, often produced by labour with other qualifications. in relation to long - term capacity in the labour market, it may be of significance whether the positive impact on the labour supply of lower marginal taxes is countered by any negative effects on the labour supply from lower public consumption. this will depend on whether the cuts relate to areas of importance to families'work patterns, e. g. day care facilities and residential institutions. we have very little knowledge of the magnitude of such effects. conclusion regarding overheating all in all, there are good reasons to be highly aware of developments in demand and in economic capacity. the balance between these two must be right if we are to avoid large fluctuations in the economy. in the current situation, this gives reason to caution against easing fiscal policy or financial regulation. if good structural reforms have been identified, they should be implemented within this framework. in theory, it is possible that the impact of fully financed structural improvements is underestimated, i. e. how strong the impact is or how soon it is felt. if this underestimation is of major significance to the economy, it is still possible subsequently to adjust fiscal policy in step with the stronger - than - expected improvement in economic capacity, and hence also in government finances. conversely, it is easy to see the advantages of fully financed structural reforms. they reduce the risk that imbalances build up, leading to prolonged downturns with little or no growth. 2 in economic lingo this is referred to as " the balanced budget multiplier ". growth dynamics in brief boksx 1 it should be specified what growth rates indicate. unchanged growth rates do not indicate a stagnant or constantly growing economy, but an exponentially accelerating economy. growth rates are typically calculated by looking at output relative to output one year earlier. when output increases, output " one year earlier " keeps growing. albert einstein called compound interest the most powerful force in the universe. from 1916 to 2016, the economy grew by an average of 2. 6 per cent a year, net of inflation. this means that the economy is actually 12. 5 times as large as it was in 1916. this is partly attributable to population growth. measured per capita, average annual growth over the last 100