Ohlsson: Swedes have hidden wealth

When asset prices rise, wealth distribution becomes more uneven as the assets are not evenly distributed among households. But there is hidden wealth in Sweden that mitigates these effects – in the collective pension funds. These were the words of Deputy Governor Henry Ohlsson when he spoke today at a webinar organised by the Swedish Trade Union Confederation (LO) on the distributional effects of monetary policy.

Date: 12/04/2021 15:00

Speaker: Deputy Governor Henry Ohlsson

Expansionary monetary policy has effects on income

For several years, the Riksbank has conducted very expansionary monetary policy to bring inflation closer to the target.

Expansionary monetary policy leads to several different effects. It causes asset prices to rise and thus makes asset-owners wealthier. As the wealth is unevenly distributed among households, the income from it, capital income, will also be unevenly distributed.

At the same time, however, unemployment decreases when monetary policy is expansionary. This makes labour income more even than it otherwise would have been. “The effects on capital income and labour income thus counteract each other and it is therefore difficult to say what effect the expansionary policy has on the distribution of total income”, Henry Ohlsson pointed out.

Collective pension funds lead to more evenly distributed wealth

But this does not prevent wealth from being more unevenly distributed when asset prices rise. In Sweden, however, the effect is mitigated by the fact that a comparatively large share of the wealth is in collective pension funds. This means that more people benefit from increases in wealth than if these funds did not exist. In many other countries, these funds do not exist. “In other words, this hidden wealth is an aspect to consider when discussing the distributional effects of expansionary monetary policy,” Henry Ohlsson concluded.

Updated 12/04/2021