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Macro Comment SwedenThe krona has weakened, but it is not particularly weak

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As the krona plunged to its weakest since the financial crisis, the exchange rate debate quickly spiralled. Media stories discussed the role of the Riksbank's monetary policy, how general risk aversion is hitting small open economies and how global uncertainty is high. But the debate has not stopped there: hypothe-ses are being treated as truths and remain unchallenged. What if the krona has weakened but should not be regarded to be particularly weak? After revisiting the fundamentals behind exchange rate trends and discussing the statistical pitfalls of comparing price data in different countries, we conclude that a signifi-cant part of the trend-weakening of the krona over the past decade can be explained by inflation rising faster in Sweden. As a consequence, the krona's undervaluation is not as sizeable as many have argued and our new fair value assessments are for a weaker krona than we previously estimated.

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Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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