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Tag Archives: helicopter

Monetary and fiscal cooperation: the case for a state dependent assignment

In December last year Mark Carney said“In a global liquidity trap, central banks cannot be the only policy makers who do “whatever it takes.” There are clear gains from coordination, with other policies – particularly fiscal policy” I of course agree, as would most academic macroeconomists. So would any sensible informed fiscal policy maker. But of course this didn’t happen in the Global Financial Crisis from 2010 onwards in some key major economies, including the UK. Carney’s statement,...

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Helicopter Money: missing the point

I am tired of reading discussions of helicopter money (HM) that have the following structure: HM is like a money financed fiscal stimulus HM would threaten central bank independence So HM is a bad idea (Admittedly here (3) is only implicit.) What these discussions never seem to ask, even when discussing (2), is why we have independent central banks (ICB) in the first place. And what they never seem to note, even in establishing (1), is that ICBs deny the possibility of a money financed...

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Negative rates, helicopter money and the Bank of England

Yesterday Mark Carney said he was against negative interest rates and helicopter money, but in reality he implemented a way of doing a version of both. Let me explain. When negative interest rates are discussed, we normally think about savers, and the fact that they could avoid being charged to deposit money in a bank by hoarding cash. But borrowers would have no problem with negative rates: borrow £1000, and just pay back £990. The bank they borrowed from would have, unless there were...

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Money and Debt

For economists As regular readers will know, my advocacy of helicopter money (HM) does not depend on it being different from, or better (at stimulating demand) than, fiscal policy. [1] So, for example, when Fergus Cumming from the Bank of England saidthat if after HM the government recapitalised a central bank this “reduces the initial stimulus to a vanilla, bond-financed fiscal transfer”, then that sounds just fine to me. Except, of course, to note that HM is not just like fiscal policy...

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Helicopter money and fiscal policy

Both John Kayand Joerg Bibowthink additional government spending on public investment is a good idea, and that helicopter money (HM) is either a distraction (Bibow) or fiscal policy by subterfuge (Kay). They are right about public investment, but wrong about HM. We can have endless debates about whether HM is more monetary or fiscal. While attempts to distinguish between the two can sometime clarify important points (as herefrom Eric Lonergan) it is ultimately pointless. HM is what it is....

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Can governments offset helicopter money

Nick Rowe makes a couple of simple pointsaround my postyesterday. Let me start with the issue of whether helicopter money (HM) is ‘permanent’ or not. (Alas I cannot match Nick’s admirable brevity.) Permanent or temporary? Think about a really simple world, where the ratio of money to prices is always the same in the long run. In this world we have a short run recession accompanied by deflation, and nominal interest rates have hit the buffer of zero (or wherever). The inflation target is 2%,...

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Ben Bernanke and Democratic Helicopter Money

“The fact that no responsible government would ever literally drop money from the sky should not prevent us from exploring the logic of Friedman’s thought experiment, which was designed to show—in admittedly extreme terms—why governments should never have to give in to deflation.” The quote above is from a postby Ben Bernanke (who, in case anyone does not know, used to be in charge of US monetary policy). I put it up front because it expresses a macroeconomic truth that no one should ever...

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Helicopters are easy to fly

The debate over helicopter money seems to have got past the ‘shock, horror, people’s faith in the monetary system would collapse’ phase, and past the ‘it wouldn’t work because people wouldn’t spend the money’ phase, to the ‘what happens next’ phase. And to be fair to the critics, many proponents of helicopter money have not been clear on this issue. The point was put very clearly yesterday in an FT Alphaville pieceby Gerard MacDonell. Once the recession is over, there is likely to be too much...

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Two related confusions about helicopter money

Confusions about helicopter money is something of a generic title (although Martin Sandbu is thankfully not confused). Because a discussion of helicopter money (HM) cannot normally be found in the textbooks (which have only just caught up with central bank independence), the scope for misunderstanding is huge. Here I want to talk about two related confusions. The first is about whether HM would lead to an increase or decrease in nominal interest rates, as discussed in a recent interchange...

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Central bankers and their irrational fear

Mervyn King said “Central banks are often accused of being obsessed with inflation. This is untrue. If they are obsessed with anything, it is with fiscal policy.” As an academic turned central banker, King knew of what he spoke. The fear is sometimes called fiscal dominance: that they will be forced to monetise government debt in such a way that means inflation rises out of control. I believe this fear is a key factor behind central banks’ reluctance to think seriously about helicopter money....

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