The development of interest rates abroad and the krona exchange rate Let me begin with the forecast for economic activity abroad, which I think in some respects has been given too much significance in the discussion of our forecasts for, for example, the krona exchange rate. As I see it, changes in interest rates abroad relative to Swedish interest rates say more about the current exchange rate for the krona than about the future development of the krona. The fact that interest rates increased more in Sweden than in the euro area in the first half of 2010 is thus an explanation of why the krona strengthened against the euro in the same period, but high Swedish interest rates relative to those in the euro area will not necessarily lead to the krona strengthening in the period ahead.8 My belief that too much importance has been attached to forecasts of policy rates abroad does not mean that financial prices abroad are of no interest. On the contrary, developments in 2010 illustrate that long-term Swedish rates often appear to be strongly affected by developments abroad, and especially in the United States, without these shifts being motivated by changes in economic activity in Sweden. We need to improve our understanding of international financial links of this kind. Can assessments stop short at the end of the forecast horizon?
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  8  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. 8  BIS central bankers’ speeches  in our monetary policy decision-making. Ignoring such risks completely is, in my view, the same as saying that they do not exist, and that is a position that I would not want to defend.