Henry Ohlsson: Hidden wealth

Speech by Mr Henry Ohlsson, Deputy Governor of the Sveriges Riksbank, at a webinar organised by the Swedish Trade Union Confederation (LO), 12 April 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Expansionary monetary policy causes asset prices to rise and thereby makes those who own assets wealthier. But this wealth is unevenly distributed among households, and therefore the income from it (capital income) will also be unevenly distributed. Expansionary monetary policy can thus lead to more uneven capital income.

At the same time, unemployment decreases when monetary policy is expansionary. This makes labour income more even than it otherwise would have been. As the effects on capital income and labour income counteract each other, it is unclear what effect the expansionary policy has on income distribution in total.

But this does not stop higher asset prices leading to more uneven wealth distribution. In this speech, I will highlight a phenomenon that can mitigate this effect. I will start with an example that illustrates what I mean by hidden wealth.

The Norwegian oil fund is one of the world's largest funds. In 2019, the value of the fund was 285 per cent of Norway's nominal GDP. Norway's revenue from oil operations are added to the fund and the assets are then invested abroad. The nominal return has been a good 6 per cent a year on average since the fund started in 1996. Every year, the Norwegian state may utilise the fund's average real return. The real return is assumed to be 3 per cent per year on average. About 20 per cent of the Norwegian government budget is currently financed via the oil fund.