On the basis of research to date we believe it is reasonable to suggest that a 1 percent increase in 90 day interest rates has roughly the same effect on inflation, in the medium-term, as a 2 percent increase in the (trade-weighted) exchange rate.
The euro area did not manage to track Sweden’s strong rebound from the Great Recession. Following a shallow recovery in 2010 and 2011, it fell back into recession in the course of 2012. Yet the darkest clouds hanging over the euro area now appear to have lifted. Recent economic and financial developments have indeed been encouraging.