Helicopter Money: A Preliminary Appraisal

Agarwal, Samiksha and Chakraborty, Lekha (2019): Helicopter Money: A Preliminary Appraisal.

Abstract

Helicopter money is a monetary policy tool to boost spending levels in an economy experiencing low nominal demand, deflation and high debt to GDP ratio. It is the monetary financing of fiscal deficits, in a strict sense of “seigniorage”, in order to reach the inflation and the growth targets in the economy. We critically review in this paper how helicopter money is carried out through direct transfers to the public, or through a “fiscal stimulus” (tax cut or public expenditure boost). Helicopter drops are gaining relevance today in context of the non-efficaciousness of orthodox monetary policy tools like Quantitative Easing (QE) and the persistently low demand levels in the economies. However, the political economy determinants, the macroeconomic policy context and the fiscal-monetary policy linkages are crucial in the effective implementation of helicopter money and it is indeed challenging. When fiscal consolidation strategies adopt public expenditure compression rather than tax buoyancy to reach the rule-based fiscal policies and in turn its adverse consequences on economic growth - which has started showing up in growth downturn - a re-look into the plausible financing patterns of deficit and new monetary policy tools is refreshing.

• Item Type: MPRA Paper
• Language: English
• Keywords: Helicopter money, Quantitative easing, Demand, Fiscal stimulus
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy

References

Auerbach and Obstfeld (2004) ‘The Case for Open-Market Purchases in a Liquidity Trap’, University of California, Berkeley, December 2004

Buiter, W. (2014) ‘Helicopter Money-Irredeemable fiat money and the liquidity trap Or: is money net wealth after all?’, NBER , January 1, 2004

Bernanke, B. (2003) ‘Some Thoughts on Monetary Policy in Japan’, Speech Before the Japan Society of Monetary Economics, Tokyo, Japan, May 31, 2003.

Bernanke, B. (2016) ‘What tools does the Fed have left? Part 3: Helicopter money’, Brookings, 11 April, 2016.

Blyth, M and E. Lonergan (2014) ‘Print Less but Transfer More. Why Central Banks Should Give Money Directly to the People’, Foreign Affairs, September/October

Buiter, W. (2014) ‘The Simple Analytics of Helicopter Money: Why It Works – Always’, Economics, Vol. 8, 2014-28, August 21, 2014,.10.5018/economics-ejournal.ja.2014-28

Buiter, W. (2007) ‘Seigniorage’, Economics: The Open-Access, Open-Assessment EJournal 1(2007-10), 10.5018/economics-ejournal.ja.2007-10

Eggertsson, Gauti and Michael Woodford (2003). The Zero Bound on Interest Rates and Optimal Monetary Policy. Brookings Papers on Economic Activity, 2003.

Eggertsson, Gauti and Michael Woodford (2006). Optimal Monetary and Fiscal Policy in a Liquidity Trap, edited by Richard H. Clarida, Jeffrey Frankel, Francesco Giavazzi and Kenneth D. West, editors NBER International Seminar on Macroeconomics 2004, NBER book, http://www.nber.org/chapters/c0076

Gali, J. (2014) ‘The Effects of a Money Financed Fiscal Stimulus’, CREI, 2014[Retrieved from]. Josh RyanCollins ‘Is Monetary Financing Inflationary?-A Case Study of the Canadian Economy, 1935–75’, Levy Economics Institute of Bard College, October 2015.

Krugman, Paul R. (1998). It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap. Brookings Papers on Economic Activity,

Michael Biggs (2016) ‘Manna from Helicopters’, Project Syndicate, 13 May,2016.

Reichlin, L., Turner, A., Woodford, M. (2013) ‘Helicopter money as a policy option’, vox-eu 20 May 2013.

Turner, A. (2015) ‘The Case for Monetary Finance- An Essentially Political Issue’, 16th Jacques Polak Annual Research Conference, International Monetary Fund, November 5- 6, 2015.

Turner, A. (2016) ‘Adair Turner in defense of Helicopter Money’, World Economic Forum, 11 May 2016

Wren-Lewis, S. (2016) ‘Ben Bernanke and Democratic Helicopter Money’, Mainly Macro, 4 May 2016.

Wren-Lewis, S. (2014) ‘Helicopter money’, Mainly Macro, 22 October 2014

Wren-Lewis, S. (2015) ‘When central bank losses matter’, Mainly Macro, 20 January 2015

Watt, A. (2013) ‘Quantitative easing with bite: a proposal for conditional overt monetary financing of public investment’, Macroeconomic Policy Institute,

Woodford, M (2012). Methods of Policy Accommodation at the Interest-Rate Lower Bound. Proceedings – Economic Policy Symposium – Jackson Hole, 2013.