Helicopter money

Helicopter money for the next downturn

Bartsch and al. argue that as:

• Monetary policy is almost exhausted as global interest rates plunge towards zero or below and;
• Fiscal policy is unlikely to be effective on its own.

An unprecedented response will be needed to fight the next recession. More specifically, central banks need to find ways to get central bank money directly in the hands of public and private sector spenders.  This can be organised  by:

1. Bypassing the interest rate channel when this traditional central bank toolkit is exhausted, and;
2. Enforcing policy coordination so that the fiscal expansion does not lead to an offsetting increase in interest rates.

Dealing with the next downturn: From unconventional monetary policy to unprecedented policy coordination
By: Elga Bartsch, Jean Boivin, Stanley Fischer, Philipp Hildebrand – BlackRock Investment Institute

How likely is helicopter money as a policy?

Simon Wren-Lewis argues that giving money directly to people rather than buying assets would have a direct and more predictable impact in stimulating the economy. But central banks don’t do this because they worry that increasing people’s income is the job of elected governments; and if they create money to buy assets, when the economy recovers they can, if necessary, take money out of the economy by selling those assets.

Besides these arguments, I think there is a third argument why most central banks have not proposed doing these types of measures in a major way, and that is conservatism with a small c.

How the lessons from austerity have not been learned
By: Simon Wren-Lewis – Oxford University