Helicopter Money - Policy Response To Exogenous Shock

Is Helicopter Money a credible solution?

On 8 July, UK Chancellor Rishi Sunak announced a scheme whereby the government would give diners £10 vouchers to eat out in pubs and restaurants. The Resolution Foundation is urging him to go further, and to implement a proposal to give every adult a £500 voucher to spend in the High Street. Former Chancellor Norman Lamont, regarded in his time as a careful steward of the UK economy, has praised the current incumbent's steps towards using Helicopter Money as a solution to the problem of how to get people spending again and to save jobs. So what is "Helicopter Money," how does it work, and what are the implications if governments around the world see it as a credible solution?

Potentially seen as one of, if not, the last weapons in the monetary and fiscal stimulus policy arsenal of central bankers and governments, 'Helicopter Money' (or direct payments to the public and businesses from governments) has come a long way since its inception as a classroom concept back in 1969. Often seen as a last throw of the dice after other financial acronyms (ZIRP, QE, NIRP) have seemingly failed to stimulate inflation or GDP growth, Helicopter Money is seen as the financial bazooka potentially large enough to ward off the 'grey rhino' charging towards the world in the shape of a looming, deep global recession caused by the exogenous shock of the COVID-19 pandemic.

In this carefully curated list of white papers drawn from a variety of sources, the concept of Helicopter Money is explained. Additionally, there are articles which illustrate how it might be used, critiques which discuss the case for and against its use, and further analysis which examines Helicopter Money's near-equivalent, Quantitative Easing (or QE).

HELICOPTER MONEY AND FINANCIAL STIMULUS

What is helicopter money? (WEF, 2020)

Tomas Hirst outlines the concept of helicopter money, its differences from quantitative easing (QE) and some of its limitations.

How Helicopter Money Works (Columbia Threadneedle, 2016)

Columbia Threadneedle examines the concept of helicopter money and its potential effect on markets.

The Power of Helicopter Money Revisited: A New Keynesian Perspective (Bank of Canada, 2020)

In this paper from the Bank Of Canada, they analyze the financing of fiscal transfers ('helicopter money') in two New Keynesian models.

Against Helicopter Money (Cato Institute Journal, 2018)

Prof. Kevin Dowd of Durham University presents a powerful case in which he argues forcefully against the use of Helicopter Money.

Helicopter Money: The time is now (VoxEU blog, Mar 2020)

This paper from Jordi Gali argues that helicopter money could be one solution to the fiscal stimulus required to mitigate the significant impact on GDP from the COVID-19 pandemic.

Central Banks as Fiscal Players: The drivers of fiscal and monetary policy space (Willem H. Buiter, 2019)

In his book, Willem Buiter suggests that central banks do indeed play a significant, sometimes essential, role in fiscal policy via their monetary policy actions.

The Simple Analytics of Helicopter Money: Why It Works – Always (Willem Buiter, 2014)

Willem Buiter, independent economic consultant and former member of the Bank of England's Monetary Policy Committee, outlines Friedman's parable, noting that for helicopter money to boost aggregate demand, three crucial conditions must first be satisfied.

Helicopter money and basic income: Friends or foes? (Basic Income News, 2017)

This paper attempts to differentiate between helicopter money and basic income, outlining the differences and overlaps that exist.

Fiscal Monitor: Tackling Inequality (IMF, 2017)

This 2017 paper from the IMF discusses redistributive fiscal policies, including top-level tax cuts and a universal basic income.

The failure of monetary stimulus (JP Morgan AM, 2019)

JP Morgan AM outlines the ways in which both conventional and unconventional methods were adopted by central banks after the Global Financial Crisis. This paper also investigates its effectiveness via a number of different transmission mechanisms.

Will helicopter money be spent? New evidence (De Nederlandsche Bank, 2016)

For compliance reasons, this paper is NOT accessible in the United States

Based on a study of Dutch households, DNB finds that only a small proportion of helicopter money was likely to be spent, limiting its effectiveness in trying to stimulate inflation or economic growth.

ECB QE Monitor (Amundi AM, Feb 2020)

Amundi AM's monthly synopsis of what actions the ECB has undertaken under its QE policy.

RECESSION

Are markets ready for an unlikely “average recession”? (State Street blog, Mar 2020)

Michael Metcalfe, global head of macro strategy at State Street Global Markets, asks if the equity market is already pricing in an average recession.

U.S. recession and the fiscal imperative (Wellington blog, Mar 2020)

Juhi Dhawan explains why US fiscal policy will be the critical tool used in efforts to mitigate the effects of COVID-19.

The Forgotten 1957 Pandemic and Recession (Marginal Revolution, 2020)

This brief blog post notes some similarities between the 1957 Asian Flu Pandemic, US GDP rates and current conditions.

Recessions and Shocks (Variant Perception, Mar 2020)

For compliance reasons, this paper is NOT accessible in the United States and Canada

This short paper from Variant Perception notes that data about the economy and the exogenous shock that caused it will need to improve before the 'bottom is in'.

Recovery Rates: The roads from recession to recovery (LGIM blog, Mar 2020)

LGIM asks what shape any recovery might be, and how long any recession might be.

QUANTITATIVE EASING

QE: the end of the road for pension investors? (Amundi AM/CREATE-Research, 2019)

For compliance reasons, this paper is NOT accessible in the United States

Amundi AM asks, ten years on, whether Quantitative Easing (QE) has been a blessing or a curse for investors and how it might affect asset allocation decisions within pension plans.

To QE Infinity and Beyond (Record, Mar 2020)

In this blog post, Record asks the question: what are the implications of infinite Quantitative Easing?