IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/97897.html
   My bibliography  Save this paper

Helicopter Money: A Preliminary Appraisal

Author

Listed:
  • Agarwal, Samiksha
  • Chakraborty, Lekha

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.

Suggested Citation

  • Agarwal, Samiksha & Chakraborty, Lekha, 2019. "Helicopter Money: A Preliminary Appraisal," MPRA Paper 97897, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:97897
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/97897/1/MPRA_paper_97897.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alan J. Auerbach & Maurice Obstfeld, 2005. "The Case for Open-Market Purchases in a Liquidity Trap," American Economic Review, American Economic Association, vol. 95(1), pages 110-137, March.
    2. Buiter, Willem H., 2014. "The simple analytics of helicopter money: Why it works - always," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-51.
    3. Galí, Jordi, 2020. "The effects of a money-financed fiscal stimulus," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 1-19.
    4. Andrew Watt, 2015. "Quantitative easing with bite: a proposal for conditional overt monetary financing of public investment," IMK Working Paper 148-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Willem H. Buiter, 2003. "Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap," NBER Working Papers 10163, National Bureau of Economic Research, Inc.
    6. Gauti B. Eggertsson & Michael Woodford, 2006. "Optimal Monetary and Fiscal Policy in a Liquidity Trap," NBER Chapters, in: NBER International Seminar on Macroeconomics 2004, pages 75-144, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chakraborty, Lekha & Thomas, Emmanuel, 2020. "COVID-19 and Macroeconomic Uncertainty: Fiscal and Monetary Policy Response," Working Papers 20/302, National Institute of Public Finance and Policy.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eiji Okano & Masataka Eguchi, 2024. "The Effects of a Money-Financed Fiscal Stimulus in a Small Open Economy," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(3), pages 1212-1237, September.
    2. Jin, Hao & Wang, Junfeng, 2024. "The effects of a money-financed fiscal stimulus under fiscal stress," Journal of Macroeconomics, Elsevier, vol. 81(C).
    3. Yasushi Iwamoto, 2005. "Interaction between Monetary and Fiscal Policy and the Policy Mix, Theoretical Consideration and Japanese Experience," CARF F-Series CARF-F-043, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    4. Galí, Jordi, 2020. "The effects of a money-financed fiscal stimulus," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 1-19.
    5. Garga, Vaishali & Singh, Sanjay R., 2021. "Output hysteresis and optimal monetary policy," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 871-886.
    6. Lukas Altermatt, 2022. "Inside Money, Investment, And Unconventional Monetary Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1527-1560, November.
    7. Maarten van Rooij & Jakob de Haan, 2016. "Will helicopter money be spent? New evidence," DNB Working Papers 538, Netherlands Central Bank, Research Department.
    8. Buiter, Willem, 2017. "The Fallacy of the Fiscal Theory of the Price Level - Once More," CEPR Discussion Papers 11941, C.E.P.R. Discussion Papers.
    9. Buiter, Willem H., 2014. "The simple analytics of helicopter money: Why it works - always," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 8, pages 1-51.
    10. Pierpaolo Benigno & Salvatore Nisticò, 2020. "Non-neutrality of Open-Market Operations," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 175-226, July.
    11. Andreas Tischbirek, 2016. "Unconventional Monetary Policy in a Currency Union with Segmentation in the Market for Government Debt," Cahiers de Recherches Economiques du Département d'économie 16.16, Université de Lausanne, Faculté des HEC, Département d’économie.
    12. Gilles Dufrénot & Anwar Khayat, 2014. "Monetary Policy Switching in the Euro Area and Multiple Equilibria: An Empirical Investigation," AMSE Working Papers 1408, Aix-Marseille School of Economics, France, revised Jan 2014.
    13. Gregor Bäurle & Daniel Kaufmann & Sylvia Kaufmann & Rodney W. Strachan, 2016. "Changing dynamics at the zero lower bound," Working Papers 16.02, Swiss National Bank, Study Center Gerzensee.
    14. Buiter, Willem H. & Sibert, Anne C., 2018. "The fallacy of the fiscal theory of the price level: One last time," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-56.
    15. Nell, Kevin, 2023. "Inflation and growth in developing economies: A tribute to Professor Thirlwall," MPRA Paper 118757, University Library of Munich, Germany, revised 01 Sep 2023.
    16. Michael B. Devereux & James Yetman, 2014. "Capital Controls, Global Liquidity Traps, and the International Policy Trilemma," Scandinavian Journal of Economics, Wiley Blackwell, vol. 116(1), pages 158-189, January.
    17. Grahame Johnson & Sharon Kozicki & Romanos Priftis & Lena Suchanek & Jonathan Witmer & Jing Yang, 2020. "Implementation and Effectiveness of Extended Monetary Policy Tools: Lessons from the Literature," Discussion Papers 2020-16, Bank of Canada.
    18. Buiter, Willem, 2017. "The Good and the Bad Fiscal Theory of the Price Level," CEPR Discussion Papers 11975, C.E.P.R. Discussion Papers.
    19. Claudio Borio & Anna Zabai, 2018. "Unconventional monetary policies: a re-appraisal," Chapters, in: Peter Conti-Brown & Rosa M. Lastra (ed.), Research Handbook on Central Banking, chapter 20, pages 398-444, Edward Elgar Publishing.
    20. Pierpaolo Benigno & Salvatore Nisticò, 2020. "The Economics of Helicopter Money," Working Papers CASMEF 2001, Dipartimento di Economia e Finanza, LUISS Guido Carli.

    More about this item

    Keywords

    Helicopter money; Quantitative easing; Demand; Fiscal stimulus;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:97897. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.