Is the time ripe for helicopter money? Growth impact and financial stability risks of outright monetary transfers

Jacopo Temperini, Carlo D'Ippoliti and Lucio Gobbi

Structural Change and Economic Dynamics, 2024, vol. 69, issue C, 24-36

Abstract: We study the effectiveness of helicopter money, once a thought experiment that is now a feasible option given new digital technologies. We consider the effects of central bank digital currencies (CBDC) from a theoretical point of view, by means of a stock-flow consistent model of a growing open economy. We compare the effectiveness of this tool with that of traditional fiscal and monetary policies. We find that issuing a CBDC by expanding the central bank's balance sheet can have a durable impact on GDP and crucially, it allows for the activation of a new transmission channel, which depends on the sensitivity of investment and of the interest rate to firms’ leverage. But it might reduce the demand for bank deposits, and even more crucially for bank loans, thus creating challenges for financial stability.

Keywords: Helicopter money; Central bank Digital Currencies; Monetary policy; Transmission channels (search for similar items in EconPapers)
JEL-codes: E12 E5 G0 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:69:y:2024:i:c:p:24-36

DOI: 10.1016/j.strueco.2023.11.003

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