BIS Review 137/2010  5  Nevertheless, several risks to home prices in the City remain. These risks include the ongoing completion of a considerable number of new apartment buildings – ones that were started at the end of the boom. Another risk comes from the slow pace of job growth in highpay sectors (including the securities industry) in New York City. Finally, during the boom, prices rose substantially faster than rents. Going forward, this disparity could exert downward pressure on home prices as renting has become a more affordable alternative. Conclusion In sum, after a recession that was milder than in many parts of the country, the region is showing signs of a modest recovery in New York, but little growth elsewhere. The housing sector played a pivotal role in the recent national downturn. In the region, the fact that housing activity has a smaller weight in the regional economy helped to limit the recession’s impact on many communities. Going forward, given housing’s significance to the well-being of people in our region and beyond, the New York Fed will continue to focus on the sector as we monitor regional and national economic conditions. Thank you for your kind attention. I will now ask James Orr to provide more details on current regional economic conditions. 6  BIS Review 137/2010
The longer the krona remains 2  2  These calculations are based on a Cobb-Douglas production function with a constant returns to scale. BIS Review 78/2001  undervalued, the greater the risk of bad investments being made in domestic businesses. I do not intend to go into these issues in greater detail here and now, but would nevertheless like to point out that undesirable effects on business can arise through a misaligned currency giving flawed relative prices. Companies may make decisions regarding investment and employment on the basis of these relative prices. The foremost risk here is that too many resources will be drawn to the export sector and to the import competition sector before there is a return to the equilibrium exchange rate and to corresponding relative prices. At that point, the resources overinvested in these sectors will be transferred to other sectors. We know from previous structural changes in, for instance, shipping, steel manufacture and the property sector, that such a development would result in considerable costs to the real economy. One should not underestimate the importance for welfare of a correctly valued Swedish krona. Openness is important Factor productivity is also affected by a country's capacity to utilise technological progress in the outside world. This capacity in turn depends on how open the country is to impulses from outside, which is determined by the barriers that exist to ideas, goods, services and production factors moving freely across the borders.