##rial to the success of a fixed - exchangerate policy. the monetary - policy transmission mechanism is of crucial importance in the choice between businesscycle and exchange - rate stabilisation. the direct effect from changes in short - term interest rates to domestic demand is comparatively small in denmark. the terms for mortgage financing, which is the most important transmission channel to the household sector, are predominantly based on fixed 20 - year or 30 - year mortgage bond yields. adjustable mortgage lending at 1 - 5 year interest rates has, however, gained in importance in recent years. in early 2003 approximately 30 per cent of mortgagecredit - lending has adjustable rates, in part reflecting a substitution from bank - lending to mortgagecredit - lending. in spite of this, it is unlikely to create major problems for handling future speculative attacks, because the spill - over to 12 - months rates is rather limited. the greater concern with respect to adjustable rate mortgages is the financial health of households in case of a more global rise in interest rates, of christensen and kjeldsen ( 2002 ). the basic textbook model includes only one policy instrument for short - term stabilisation - monetary policy. this is a standard formulation in the literature and also in line with practice in most industrialised countries. discretionary fiscal policy came into disrespect after the abuse of the instrument in the 1960s and 1970s, which led to stagflation, large budget deficits and high public debt in many countries. denmark has also suffered from this experience, but discretionary fiscal policy is still used to stabilise the economy. chart 4 output gap in denmark, germany and the euro area per cent - 1 - 2 - 3 - 4 - 5 denmark germany euro area note : 2002 and 2003 are projections. source : oecd, economic outlook. it is important to underline that the frequency of discretionary fiscal measures is low and far below the frequency of monetary - policy changes in countries with other monetary regimes. the government does not meet every two weeks to consider an adjustment to e. g. the vat rate following the latest business - cycle information. during the past decade discretionary fiscal stabilisation measures outside the normal central - government budgetary calendar have been introduced on three occasions : temporary expansive measures in 1993, and contractive measures in 1997 and 1998, cf. chart 5. however, considerations regarding the appropriate macroeconomic impulse from the government budget to output are made during the annual budget negotiations. in years when

assessments stop short at the end of the forecast horizon? another point that i usually make is that it can be difficult to draw monetary policy conclusions from our forecasts as they only cover a limited forecast horizon of three years. a certain repo - rate path may appear to provide better target attainment than other paths over this limited forecast horizon but could well lead to poorer target attainment beyond it. it is therefore desirable when making monetary policy decisions to take into account the possible state of the economy beyond the forecast horizon, even though it is difficult to do this in terms of quantified forecasts. one way to do this is to choose a repo - rate path that provides good target attainment at the end of the forecasting period but does not entail serious tendencies towards poorer target attainment beyond the forecast horizon. even though we have a limited forecast horizon, the monetary policy decisions must also to some extent look ahead to what can happen afterwards. the development of house prices and household indebtedness could, for example, entail risks that materialise beyond the current forecast horizon, especially if monetary policy remains far too expansionary for far too long. the question of whether risks of this type should be considered in the monetary policy decisions has been widely debated. one view is that such risks should already be taken into account in our standard quantified forecasts. although i hope that the analysis will eventually develop to the extent that it is possible in a reasonably reliable way to take account of this type of risk in our forecasts we are not there yet. my view is that it may sometimes be justified to consider this kind of unforecastable risk according to the theory of uncovered interest rate parity, the market expects the krona to weaken against the euro in the period ahead if swedish interest rates are higher than those in the euro area. uncovered interest rate parity also explains why the krona strengthened at the same time ( and not afterwards ) as swedish interest rates increased relative to those in the euro area in 2010. however, the empirical support for uncovered interest rate parity is weak and there are many examples of deviations from the theory. for example, the krona strengthened more against the euro in 2010 than implied by uncovered interest rate parity. i refer to my speech “ many dimensions to well - balanced monetary policy ”, dated 26 january 2011, for a more detailed discussion of the development of interest rates and the krona exchange rate in 2010. bis central bankers