This is important not least for the subsequent discussions with the other EU countries. I have devoted a good deal of my time here to the question of an appropriate central rate and how this question can be addressed in principle. There are two points I want to underscore: •  Calculations of the real exchange rate, which provide a starting point for discussions about reasonable central rates, are highly uncertain. Different economic models yield different results but can still be used to arrive at an approximate interval. Our calculations consistently suggest that an appreciation from the present rate is motivated. However, as relative GDP, terms of trade and other explanatory factors vary over time, calculations today may give a somewhat different picture from the calculations that were made some years ago. •  When setting a rate it is also natural to consider the level that is appropriate in the medium term. In this context it is primarily a matter of ensuring a stable adaptation to ERM2 and EMU, which calls for an exchange rate that markets find credible. The conditions for achieving this are naturally better if economic development in Sweden is balanced, with stable prices, etc. An unduly weak rate implies a stimulus to the Swedish economy that soon has to be met with a tightening of fiscal policy. An unduly strong rate, on the other hand, may be too restrictive, with negative consequences for growth and employment in Sweden.
In contrast to the nominal exchange rate, which is the relative price of different currencies, the real exchange rate is the relative price of groups of goods. More specifically, the real exchange rate is defined as the amount of domestic goods that has to be provided in exchange for a given amount of goods from abroad. The value of the real exchange rate is calculated in practice as a quotient, the denominator being the product of the nominal exchange rate and an appropriate price index for foreign goods and the numerator the corresponding domestic price index. The real exchange rate is commonly regarded as a measure of a country's international competitiveness. The weaker the real exchange rate - the more domestic goods that are needed to balance a given amount of foreign goods - the cheaper it is for firms and consumers abroad to buy Swedish products: our competitiveness is stronger. It follows that the real exchange rate is a measure of purchasing power; the weaker the real exchange rate, the smaller the amount of foreign goods that can be bought for a given amount of domestic goods. This needs to be kept in mind when discussing what are appropriate central and conversion rates. A weak rate can admittedly confer competitive advantages but it also means that people in Sweden are poorer. Sweden's full participation in the monetary union locks only one of the components of the real exchange rate - the nominal exchange rate.