DP14555 The Economics of Helicopter Money

Author(s): Pierpaolo Benigno, Salvatore Nisticò
Publication Date: April 2020
Date Revised: April 2020
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14555

An economy plagued by a slump and in a liquidity trap has some options to exit the crisis. We discuss helicopter money and other equivalent policies that can reflate the economy and boost consumption. In the framework analysed - where lump-sum transfers may be the only effective fiscal response, like in the current pandemic crisis - the central bank, and only the central bank, is the rescuer of last resort of the economy. Fiscal policy is bounded by solvency constraints unless the central bank backs treasury's debt.