by In his blog, Ben Bernanke discusses the merits of “helicopter drops” as a monetary policy tool. [A] “helicopter drop” of money is an expansionary fiscal policy—an increase in public spending or a tax cut—financed by a permanent increase in the money stock. … the Fed credits the Treasury … in the Treasury’s “checking account” at the central bank, and those funds are used to pay for the new spending and the tax rebate. … it should influence the economy through a number of channels, making it extremely likely to be effective—even if existing government debt is already high and/or interest rates are zero or negative. … the channels would include: the direct effects of the public works spending on GDP, jobs, and income; the increase in household income from the rebate, which should induce greater consumer spending; a temporary increase in expected inflation, the result of the increase in the money supply. Assuming that nominal interest rates are pinned near zero, higher expected inflation implies lower real interest rates, which in turn should incentivize capital investments and other spending; and the fact that, unlike debt-financed fiscal programs, a money-financed program does not increase future tax burdens. [Debt financed spending programs lack channels 3 and 4.
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Dirk Niepelt considers the following as important: balance sheet, Credibility, Federal Reserve, Fiscal policy, Helicopter drop, Monetary Policy, Notes, Transfer, Treasury
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In his blog, Ben Bernanke discusses the merits of “helicopter drops” as a monetary policy tool.
[A] “helicopter drop” of money is an expansionary fiscal policy—an increase in public spending or a tax cut—financed by a permanent increase in the money stock.
… the Fed credits the Treasury … in the Treasury’s “checking account” at the central bank, and those funds are used to pay for the new spending and the tax rebate.
… it should influence the economy through a number of channels, making it extremely likely to be effective—even if existing government debt is already high and/or interest rates are zero or negative. … the channels would include:
- the direct effects of the public works spending on GDP, jobs, and income;
- the increase in household income from the rebate, which should induce greater consumer spending;
- a temporary increase in expected inflation, the result of the increase in the money supply. Assuming that nominal interest rates are pinned near zero, higher expected inflation implies lower real interest rates, which in turn should incentivize capital investments and other spending; and
- the fact that, unlike debt-financed fiscal programs, a money-financed program does not increase future tax burdens.
[Debt financed spending programs lack channels 3 and 4.]
[Helicopter drops are subject to various] practical challenges of implementation, including integrating them into operational monetary frameworks and assuring appropriate governance and coordination between the legislature and the central bank.