Helicopter Drops of Money under Secular Stagnation

Jean-Baptiste Michau

No 2019-10, Working Papers from Center for Research in Economics and Statistics

Abstract: What are the effects of helicopter drops of money under secular stagnation? This paper shows that, if the government cannot sustain a Ponzi debt scheme under full employment, then helicopter drops of money cannot transfer real wealth to households under secular stagnation. In that case, despite being in a permanent liquidity trap, a one-off helicopter drop triggers an upward jump in the price level, without any real effect on the economy. Conversely, if a Ponzi scheme can be sustained, then the helicopter drop can stimulate aggregate demand by raising household wealth. If the stagnation real interest rate is larger than the economic growth rate, the economy converges to full employment and a sustainable Ponzi scheme and, otherwise, it gradually reverts back to stagnation. Finally, continuous helicopter drops of money under stagnation must induce the economy to reach a full employment steady state, with or without a Ponzi scheme.

Keywords: Helicopter drops of money; Liquidity trap; Ponzi scheme; Secular stagnation. (search for similar items in EconPapers)
JEL-codes: E12 E31 E63 H63 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2019-06-01
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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