Working Paper: CEPR ID: DP17180
Authors: Ricardo Reis; Silvana Tenreyro
Abstract: We review the different meanings of helicopter money both in the literature and in the public debate around it, and clarify the conditions under which helicopter money can have an impact on real activity. To do so, we set out a simple model that encapsulates a number of potential channels of policy transmission. The model provides a taxonomy of possibilities for helicopter money to affect the economy, as well as a benchmark set of conditions under which it is neutral. We use the model to analyse and discuss the impact that helicopter drops might have in response to a number of economic shocks, including a financial crisis, a fiscal crisis, and a pandemic.
Keywords: Fiscal Monetary Interactions; Central Bank Balance Sheet
JEL Codes: E52; E63; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| helicopter money (E49) | stimulate the economy (E65) |
| helicopter money (E49) | consumption (E21) |
| helicopter money (E49) | economic activity (E20) |
| helicopter money (E49) | liquidity channel (E41) |
| helicopter money (E49) | interest rate channel (E43) |
| helicopter money (E49) | transaction cost channel (F16) |
| satiated demand for money (E41) | helicopter money neutral (E49) |
| conventional monetary policy can achieve inflation target (E52) | helicopter money neutral (E49) |
| no redistribution of permanent income (D15) | helicopter money neutral (E49) |
| helicopter money not neutral (E49) | significant effects on economy (F69) |
| helicopter drops (L93) | hyperinflation (E31) |
| helicopter drops (L93) | fiscal dominance (E62) |
| lack of fiscal backing (E62) | negative net worth of central bank (E58) |
| negative net worth of central bank (E58) | inflationary pressures (E31) |