has given us at the riksbank the opportunity to keep the interest rate at a low level. if we look ahead, the situation is probably the reverse. over the coming years, productivity will instead probably grow more slowly, while wages will increase more quickly than before. altogether, this indicates higher inflationary pressures and thus a higher interest rate in the coming years. references barrell, r., liadze, i. and pomerantz, o. ( 2007 ), “ import growth, globalisation and the impact of trade liberalisation ”, national institute of economic and social research discussion paper no. 294. bernanke, b. ( 2005 ), “ productivity ”, speech at the c. peter mccolough roundtable series on international economics, council on foreign relations, january 19. braunerhjelm, p., ganslandt, m., nyberg, s., stennek, j. and wahl, n. ( 2002 ), granslos konkurrens – sverige i ett integrerat europa ( unbounded competion – sweden in an integrated europe ), sns forlag. david, p. ( 1990 ), “ the dynamo and the computer : an historical perspective on the modern productivity paradox ”, american economic review 80, may, 355 - 361. forsling, g. and lindstrom, t. ( 2004 ), ” labor quality and productivity : does talent make capital dance? ”, background facts on economic statistics, 7, economic statistics department, statistics sweden. greenwood, j. and krusell, p. ( 2007 ), “ growth accounting with investment - specific technological progress : a discussion of two approaches ”, journal of monetary economics 54, 1300 - 1310. jorgenson, d., ho, m. och stiroh, k. ( 2006 ), “ potential growth of the u. s. economy : will the productivity resurgence continue? ” business economics, january, 7 - 16. swedish competition authority ( 2002 ), competition in sweden 2002, swedish competition authority ’ s report series 2002 : 4. lundgren, s. ( ed. ), edquist, h. and wallgren, a. ( 2007 ), tillvaxt i otakt ( growth out of time ), sns forlag. romer, d. ( 2005 ), advanced macroeconomics, mcgraw - hill /

by over 30 per cent ( see figure 7 ). as, however, nominal interest rates remained low, the high level of inflation entailed negative real interest rates, which further fuelled the expansion of credit. even though credit began to expand from a very low level, the rate of development was startling and it did not take long before the debts of the companies in relation to gdp reached levels only slightly below the level of private sector indebtedness in sweden ( see figure 8 ). household indebtedness did not increase quite as much ( see figure 9 ). as all three countries had also in various ways tied their currencies to the euro with the aim of eventually joining the european monetary union, they were not able to use monetary policy to restrict demand. the interest rate weapon was limited to the aim of maintaining the fixed exchange rate. at the same time, fiscal policy was expansionary and accelerated development. unlike the other countries in the baltic region, the baltic states thus entered the global financial crisis with several underlying weaknesses. there were large savings deficits in both the private and public sectors and a high level of indebtedness in the private sector. the loans also gave rise to a growing currency crisis. in addition, increasing cost pressures gradually undermined the competitiveness of the three countries. when the global financial crisis broke out, economic growth in the baltic states had already begun to decline. declining growth and the large current account deficits led investors to begin reappraising the value of eastern european and central european assets. capital inflows dried up, which made it more difficult to fund many projects and further reinforced the downturn in economic activity. the credit rating agencies downgraded the baltic states, one after the other, which further aggrevated the shortage of capital. the lack of capital thus helped to reinforce the downturn in the same way that the surplus of capital once reinforced the dramatic upturn. there are some signs that the real economy in this part of the baltic region has now begun to stabilise, but unfortunately the recovery may be a long, slow process. this is partly because external demand is still weak as a result of the global recession. above all, however, it is because domestic demand is low due to the fact that the baltic states are now carrying out so - called internal devaluations. this means that wages and other costs have been substantially reduced to restore competiveness and to counteract the serious weakening