Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap

Willem Buiter

No 10163, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The paper provides a formalisation of the monetary folk proposition that fiat base money is an asset of the holder but not a liability of the issuer. The issuance of irredeemable fiat base money can have pure fiscal effects on private demand. With irredeemable fiat base money, weak restrictions on the monetary policy rule suffice to rule out liquidity trap equilibria - equilibria in which all current and future short nominal interest rates are at their lower bounds. In a model with flexible prices, liquidity trap equilibria cannot occur as long as the private sector does not expect the monetary authority to reduce the nominal money stock to zero in the long run. In a New-Keynesian model out provided the private sector expects the authorities not to reduce the nominal stock of base money below a certain finite level in the long run. Liquidity trap equilibria can exist if and for as long as the private sector expects that the monetary authorities will ultimately reverse any current expansion of the monetary base in present value terms.

JEL-codes: E31 E41 (search for similar items in EconPapers)
Date: 2003-12
New Economics Papers: this item is included in nep-mac and nep-mon
Note: EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.nber.org/papers/w10163.pdf (application/pdf)

Related works:
Working Paper: Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10163

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10163

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().