Ohlsson: The distributional effects of monetary policy

How incomes and wealth are divided in society has considerable significance for the capacity of monetary policy to influence the economy as a whole, at the same time as the monetary policy conducted affects the distribution of income and wealth. This was the starting point when Deputy Governor Henry Ohlsson spoke on Friday at the Swedish Trade Union Confederation economists’ monetary policy seminar.

Date: 07/04/2017 09:00

Speaker: Deputy Governor Henry Ohlsson

Place: Swedish Trade Union Confederation, Stockholm

Distributional effects topical again

One of the main reasons why the distributional effects of monetary policy are being discussed now is that the Riksbank, like other central banks, has in recent years used government bond purchases in addition to large repo-rate cuts to increase activity in the economy and bring up the low inflation to 2 per cent. This has made the connection between monetary policy and rising asset prices more visible.

Picture of Deputy Governor Henry Ohlsson

However, Mr Ohlsson observes that monetary policy also affects household income and wealth in other more

direct - and probably more significant - ways. While an expansionary monetary policy contributes to rising asset prices in the short term, this is compensated by lower unemployment, higher employment and stronger growth.

"Without the expansionary monetary policy, growth and employment would have been lower and unemployment would have been higher," says Mr Ohlsson. "This would hardly have benefitted anyone, and especially not the households with the lowest incomes."

Price stability creates good conditions for economic growth and high employment

Nor would anyone have benefitted from a decline in confidence in the inflation target. The whole idea behind the inflation target is that stable prices create good conditions for economic growth and high employment. The discussion on the distributional effects of the expansionary monetary policy must also be regarded in this context, said Mr Ohlsson.

Updated 17/01/2018