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Impact of expansionary monetary policy: Swedes have hidden wealth

Summary:
Sweden central bank Deputy Governor Henry Ohlsson in this speech defends the expansionary monetary policy: 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

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Sweden central bank Deputy Governor Henry Ohlsson in this speech defends the expansionary monetary policy:

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.

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.

Amol Agrawal
I am currently pursuing my PhD in economics. I have work-ex of nearly 10 years with most of those years spent figuring economic research in Mumbai’s financial sector.

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