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ECB HELICOPTER MONEY: ECONOMIC AND POLITICAL ECONOMY ARITHMETICS

Donato Masciandaro ()

No 20138, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: We have helicopter money when there is a one-shot creation of irredeemable fiat money through intended central bank capital losses and/or a permanent monetary base change. This extraordinary monetary policy option appears whenever there is a significant economic crisis. But then the helicopter never flies. This article shows that political reasons can explain such as outcome. An independent central bank can credibly define a social optimal helicopter money. But as the redistributive effects of helicopter money increase, the risk of citizen hostility towards the central bank policy increases and helicopter money becomes unlikely. Such situation is more likely to occur if the government in charge is made up of career-concerned politicians and citizens are heterogeneous. The framework is applied in discussing the possibility of having the European Central Bank as buyer of Perpetual Bonds.

Keywords: helicopter helicopter money; monetary policy; fiscal policy; political economy; central bank independence; modern monetary theory; populism; European Central Bank (search for similar items in EconPapers)
JEL-codes: D72 D78 E31 E52 E58 E62 (search for similar items in EconPapers)
Pages: 34
Date: 2020
New Economics Papers: this item is included in nep-cba and nep-mac
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