Among the companies in our regional network, the share expecting a sharper rise in selling prices is larger than the share expecting a slower rise in prices. TNS Gallup’s business sentiment survey gives a more neutral impression. Nevertheless, both surveys indicate expectations of a sharper rise in prices in the service sector. The other Nordic countries have also experienced falling inflation. BIS Review 18/2005  3  Inflation in the Nordic countries has declined, and is now relatively low in Sweden, Denmark, Finland and Norway. According to the harmonised indices of consumer prices, inflation in February was around 1 per cent in Denmark, Sweden and Norway, while the rise in prices remained unchanged in Finland, as measured by 12-month changes. By comparison, price inflation in the euro area was close to 2 per cent. A common feature of the low level of inflation in the Nordic countries seems to be the trend in prices for imported consumer goods, even though developments have not been entirely the same in all the Nordic countries. The upturn is broadly based, and its effects are no less pronounced here in Rogaland. Demand is increasing in all sectors, particularly in oil-related industries and the construction sector. The market outlook for export-oriented and oil-related industries in the next six months is very bright and optimism is greater now than in the previous round of interviews. Domestically oriented manufacturing has not experienced large fluctuations in demand and output to the same extent.
It was exacerbated by classic moral hazard – the result of past government  BIS Review 69/2007  1  interventions to limit corporate and bank failures. And it was made worse by poor disclosure, which masked the scale of the increase in external liabilities and the deterioration in the level of official reserves. The scale of the buildup of foreign currency debt was fundamental to the dynamics of the crises. Once confidence weakened, and fixed exchange rate commitments became unsustainable, the economies experienced a sharp reversal in capital flows as both residents and nonresidents sought to limit their exposure to domestic institutions and assets. This broad flight from domestic assets created conditions similar to a classic bank run. The exchange rate decline magnified concern about potential losses in the corporate sector and banking system, which led to a further shift in assets out of the country, which exacerbated the exchange rate decline. These balance sheet vulnerabilities led to a vicious cycle in which the exchange rate and financial weaknesses reinforced each other. As economies slipped toward the edge of the cliff, policymakers were left with alarmingly few options to try to contain the crisis and mitigate the damage inflicted on the real economy. Given that real interest rates were already negative, relaxing monetary policy further risked accentuating the exchange rate decline, which would, in turn, have exacerbated the problems of the banking system. But with demand already in free fall, policymakers were equally reluctant to tighten policy and risk further damage to growth.