is possible that this will lead to a slightly faster increase in prices than would otherwise have been the case. if the increased opportunities to borrow were to have a full impact on house prices, the reform could push up prices by around five per cent. the price increases would probably be highest in the parts of sweden with the higher taxation values, where they have previously paid a relatively higher tax rate. however, there are a number of factors that imply that this calculation probably overestimates the effect on prices. firstly, the government has been indicating for some time that it intended to lower property tax. it is therefore possible that house prices have already been affected to some extent by the decision. secondly, the price increases could be counteracted by the higher capital gains tax. thirdly, if households believe that the property tax will in some way be increased in the future, it is not certain that they will be prepared to increase their borrowing. as i said, it is not easy to measure the overall effects of the changed taxes. this is a subject which i believe we will have reason to discuss further in the future. in the slightly longer term, however, developments in indebtedness and also property prices will slow down. quite simply, it is not sustainable in the long run for households to allow their debts to grow more rapidly than their incomes. households would ultimately be unable to pay their loans. in the long run it is more probable that indebtedness and house prices will increase roughly at the same rate as nominal growth in the economy. this type of adjustment to more restrained growth rates will normally occur smoothly, as households begin to feel that their finances cannot tolerate a higher level of indebtedness. if there is an overly sharp correction, it could lead to weak growth in the economy for a long period of time. in this case it would also have effects on inflation. given these consequences, it is not reasonable to entirely ignore the risks with such rapid growth in house prices and loans. there may also be justification for taking these factors into account when we make our monetary policy decisions. to contribute to some extent to a smoother adjustment, we have therefore chosen on a couple of occasions to raise the interest rate slightly sooner than planned. this method of reasoning was also one reason why i entered a reservation against the decision to keep the repo rate unchanged at the most recent monetary policy meeting at the beginning of may. i advocated raising the repo rate by 0. 25 percentage points

efficiency impact on production even outside the sectors producing it capital, where it has enabled rationalisation of labour and a reduction of the investment requirement. this theory thus explains the combination of rapid productivity growth, weak employment growth and a slow increase in investment, which has recently characterised both the us and swedish economies. so what - apart from the actual developments in productivity, employment and investment - indicates that this is the explanation? one piece of the puzzle that supports this theory is that the improvements in productivity can scarcely be explained merely by business cycle effects. this becomes clear if we study productivity growth in the corresponding phase of the business cycle during earlier periods ( figure 5 ). the measure of economic activity we have chosen is, however, more or less arbitrary and does not entirely correspond to the assessment of resource utilisation in the riksbank's inflation report. nevertheless, this does not appear to affect the general conclusion that productivity growth is unusually rapid at present, bearing in mind economic activity and could thus be a sign of a sustained change. 5. businesscycle for labour productivity in business sector 8 quarters before and 4 quarters after business activity trough in four most recent business cycles percentage 12 - month change ( 5 quarters sliding average ) current stage in business cycle business activity trough 1982q4 1981q1 - 1984q1 1993q2 1991q3 - 1994q3 1996q3 1995q4 - 1997q4 2003q3 2002q1 - 2003q3 - 1 - 1 - 8 - 4 - 8 - 4 - 8 - 4 - 8 - 4 note. business activity trough are noted in the quarters when the output gap, calculated with an hp filter, was as it largest. another piece of the puzzle is the development of factor productivity ( figure 6 ). as i mentioned earlier, a more rapid growth in factor productivity at aggregate level could be a sign that it capital is being used more efficiently even outside of the sectors producing it capital. the best method would be to study factor productivity excluding the sectors producing it capital, but this is not an easy task, due to various statistical problems. the calculations of factor productivity we have made at the riksbank indicate a relatively clear upturn in recent years. 6. capital deepening and tfp growth percentage 12 - month change ( 5 quarters sliding average ) capital deepening tfp growth - 1 - 1 - 2 - 2 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 sources : statistics sweden and the it