Discussion paper

DP14734 COVID-19, Helicopter Money & the Fiscal-Monetary Nexus

The huge actual and prospective expansionary fiscal policies triggered by the corona crisis are expected to substantially raise debt/GDP ratios. This led a number of economists to reconsider the taboo on using seignorage (or more colorfully helicopter money (HM)). Following a brief documentation of the economic impact of the crisis and the responses of aggregate demand policies the paper surveys the views of economists and policymaker in the past and present on HM. Optimal taxation considerations imply that the decision on allocating deficit financing between debt and HM falls within the realm of fiscal authorities – a fact that infringes on central bank (CB) autonomy.
The paper explores ideas aimed at improving the tradeoff between implementation of the optimal taxation principle and CB autonomy. Implication of cross-country variations in the need to use seignorage are discussed. Comparison of the indirect contribution of quantitatve easing (QE) to deficit financing with the direct contribution of HM implies that the latter can be implemented under central bank dominance without much change in existing monetary institutions. Empirical evidence from the US during the global financial crisis with the post WWI German inflation supports the view that for countries experiencing deflationary pressure HM is more potent in moving inflation toward its target than QE. Given the current outlook temporary use of HM where badly needed does not appear to involve a substantial risk of inflation.


Cukierman, A (2020), ‘DP14734 COVID-19, Helicopter Money & the Fiscal-Monetary Nexus‘, CEPR Discussion Paper No. 14734. CEPR Press, Paris & London. https://cepr.org/publications/dp14734