of the world. monetary policy shifted from expansionary to more contractionary in order to curb price increases. this could lead to a new conflict between price stability and financial stability, but the conflict is different now than in the wake of the global financial crisis. inflation is now too high, not too low, and the risks in the financial system are greater, partly because households and companies are highly indebted. this makes the economy more sensitive to interest rate increases and it may be more difficult to manage various shocks. i can note that this is a situation that we have not found ourselves in during the period with an inflation target, that is, since the mid - 1990s. excessive private debt risks leading to financial dominance in sweden, household and corporate debt is high, see figure 3. a large proportion of households also have variable interest rates, which makes them relatively sen - 23 taper tantrum refers to the strong market reactions that occurred in august 2013 when the federal reserve announced that it would begin to reduce its asset purchases. us government bond rates rose sharply in a short time. 24 see brunnermeier ( 2023 ). 15 sitive when interest rates rise. although public debt is low, which in itself is positive, it is a questionable combination, as not only the government but also households and companies need to have buffers. the debts of property companies have grown when interest rates have been low. property companies obtain funding both via the banks and via the capital market. when there is a shortage of market funding at the same time as companies'funding costs rise, the profitability and liquidity of property companies can deteriorate and this can ultimately have a negative impact on financial stability. an excessively high level of private indebtedness that increases the risks in the financial system can limit the ability of monetary policy to act, known as financial dominance. 25, 26 this could mean that the policy rate cannot be raised at the pace needed to bring down inflation. i do not consider us to be in a situation with financial dominance at present, but one cannot rule out the possibility of such a situation arising at some point in the future. we therefore need to continuously monitor developments and take measures to prevent this from happening. responsibility for financial stability is shared between different authorities monetary policy and financial stability are interdependent. without a stable financial system, price stability is threatened and without monetary stability, financial stability can be jeopardised. historically, financial regulation has primarily focused

the course of the crisis as a result of the large imbalances in the baltic economies, developments would sooner or later have led to an economic crisis regardless of the external circumstances. now the global financial crisis acted as the trigger. investors no longer wished to take on as much risk and as the baltic region was considered risky, with a risk of their currencies devaluating, capital was withdrawn from the region. governments and banks, both local and foreign - owned, experienced difficulties in finding funding. the outflow led to an acute currency crisis in latvia. the downswing in the economies was very rapid and severe, as a number of factors combined : • the countries ’ competitiveness had been undermined by the large wage increases, at the same time as the strong demand in the domestic markets had led to a waning interest in production for export. • “ bubbles ” of overproduction and high prices, primarily in the property sector, led to a more or less complete stop in construction. • the global crisis meant that demand for the countries ’ export goods declined. • the global crisis led to foreign investors being neither willing nor able to inject capital to the baltic countries. at the same time, foreign depositors made large withdrawals from the banks. the crisis led to gdp in the baltic countries falling by up to 20 per cent during 2009 alone, and budget deficits soared, as did the outflow of currency, which put pressure on the foreign currency reserves. real wages fell, unemployment rose, property prices collapsed and the number of borrowers experiencing problems repaying their loans increased rapidly. however, the outcomes in the different countries differed somewhat from one another. how has the riksbank assessed developments in the baltic countries and what action has it taken? as many of the major swedish banks have such large commitments in these countries, the riksbank has long been closely following developments in the region. this forms a natural part of our work in the financial stability field, which also encompasses other countries where the swedish banks have a significant presence. we analyse statistics and other information from these countries and we discuss developments with management and employees at their central banks, governments and financial supervisory authorities. we also follow the reports on these countries from other sources such as the imf, the eu / ecb and market data. representatives of the riksbank have accompanied the imf on several of their visits to the baltic countries and have taken part in the discussions with governments and public authorities there