The simple analytics of helicopter money: Why it works - always

Willem Buiter

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2014, vol. 8, No 2014-28, 51 pages

Abstract: The author provides a rigorous analysis of Milton Friedman's parable of the "helicopter" drop of money a permanent/irreversible increase in the nominal stock of fiat base money rate which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury - the State. Examples are a temporary fiscal stimulus funded permanently through an increase in the stock of base money and permanent QE - an irreversible, monetized open market purchase by the Central Bank of non-monetary sovereign - debt. Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable - viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists - even in a permanent liquidity trap - a combined monetary and fiscal policy action that boosts private demand - in principle without limit. Deflation, "lowflation" and secular stagnation are therefore unnecessary. They are policy choices.

Keywords: Helicopter money; liquidity trap; seigniorage; secular stagnation; central bank; quantitative easing (search for similar items in EconPapers)
JEL-codes: E2 E4 E5 E6 H6 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

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Related works:
Working Paper: The Simple Analytics of Helicopter Money:Why It Works ? Always (2014)
Working Paper: The simple analytics of Helicopter money: Why it works - always (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifweej:201428

DOI: 10.5018/economics-ejournal.ja.2014-28

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