speech date : 12 / 04 / 21 speaker : deputy governor henry ohlsson venue : lo sveriges riksbank se - 103 37 stockholm ( brunkebergstorg 11 ) tel + 46 8 787 00 00 fax + 46 8 21 05 31 registratorn @ riksbank. se www. riksbank. se hidden wealth * 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. but who owns the oil fund ’ s wealth? and who receives the return on the oil fund ’ s wealth? the direct answer is the norwegian state. indirectly, however, it is the norwegian tax - payer who owns the oil fund ’ s wealth and benefits from it. however, this is not wealth created as a result of the decisions of private individuals to buy assets of different kinds, which can then rise in value. the decisions to create the oil fund and on how it is to be managed have been political – the wealth of the fund is collective in nature. neither can norwegians sell their “ shares ” in the oil fund. * i would like to thank iida hakki

economies goes further in its implications for the way in which monetary policy has to be operated. four possible effects can be identified. first, because they are undergoing significant structural change, many emerging market economies may be more vulnerable to shocks than fully - developed economies. of course, all economies experience shocks, but the frequency and scale may be greater in emerging market economies. these shocks can have their origin in the domestic economy ( a poor crop ) or arrive unexpectedly from overseas ( higher oil prices ). either way, they are difficult enough to handle if they impact on the demand side, but more often the emerging market central banker has to grapple with sharp movements in cost pressures on the supply side. the orthodox response to shifts in supply conditions is to accept the first - round effect on prices and concentrate monetary action on heading off second - round impacts that can otherwise generate an inflationary cycle. this may be conceptually clear, but in practice it is a hideously difficult distinction to have to translate into monetary decisions. it is a good discipline in these circumstances to remind oneself regularly that higher interest rates will not help to make the maize crop grow higher. south africa's experience in 2001 - 02 is a good case in point. a precipitate and largely inexplicable fall in the exchange rate in the latter part of 2001 combined with higher fuel costs and increases in domestic food prices to deliver a severe inflationary shock. the central bank's response, to raise interest rates in progressive steps in 2002, was exemplary and appears to have worked well, with inflation now falling steadily back towards target range as the shock recedes. but the consequences were to make the central bank's task of embedding low inflation in the fabric of the economy much more challenging, because of the inevitable questions this experience raised as to whether, faced with such shocks, monetary policy really could achieve permanently low inflation. that it can, and is doing so, is now gaining wider acceptance, as reflected in continuing evidence of falling inflationary expectations. but it has required, alongside carefully - timed monetary tightening, a strong effort by the central bank to communicate its determination. the prevalence of supply - side shocks would thus seem to be one area in which emerging market economies may face particular challenges in operating monetary policy. another may arise from the impact of the exchange rate. movements in exchange rates may have a relatively larger impact in emerging market economies, and their currencies may be more exposed to underlying volatility.