Monday, June 27, 2016

Steve Cecchetti and Kim Schoenholtz — A Primer on Helicopter Money

Helicopter money is not monetary policy. It is a fiscal policy carried out with the cooperation of the central bank. That is, if the Fed were to drop $100 bills out of helicopters, it would be doing the Treasury’s bidding.
We are wary of joining the cacophony of commentators on helicopter money, but our sense is that the discussion could use a bit of structure. So, as textbook authors, we aim to provide some pedagogy. (For the record, here are links to Ben Bernanke’s excellent blog post, to a summary of Vox posts, and to Willem Buiter’s technical paper.)
To understand why helicopter money is not just another version of unconventional monetary policy, we need to describe both a bit of economic theory and some relevant operational practice. We use simple balance sheets of the central bank and the government to explain.…
Money & Banking
A Primer on Helicopter Money
Steve Cecchetti and Kim Schoenholtz

1 comment:

Jose Guilherme said...

Even in technical articles such as this one the ideological bias shows.

The authors write:

since the Treasury has spent its deposit at the central bank, something has to balance the bond that it issued. Assuming that the government operates within its long-term budget constraint—which it must do to remain solvent—the natural candidate is the present value of future tax revenues.

Well, this is simply wrong. Suppose the government (Treasury) buys a bridge by spending its deposit at the Central Bank. On the Asset side of its balance sheet a deposit at the central bank is replaced by a Fixed Asset (a bridge) not by "the present value of future tax revenues".

Many more points on this article could be criticized, but this one is a particularly glaring instance of ideological blinkers related to the "solvency constraint" obsession.