DP17180 Helicopter money: what is it and what does it do?

Author(s): Ricardo Reis, Silvana Tenreyro
Publication Date: April 2022
Keyword(s): central bank balance sheet, fiscal monetary interactions
JEL(s): E32, E52, E63
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17180

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.