Template-type: ReDIF-Paper 1.0
Author-Name: Donato Masciandaro
Title:ECB HELICOPTER MONEY: ECONOMIC AND POLITICAL ECONOMY ARITHMETICS
Abstract: We have helicopter money when there is a one-shot creation of irredeemable fiat money through intended central bank capital losses and/or a permanent monetary base change. This extraordinary monetary policy option appears whenever there is a significant economic crisis. But then the helicopter never flies. This article shows that political reasons can explain such as outcome. An independent central bank can credibly define a social optimal helicopter money. But as the redistributive effects of helicopter money increase, the risk of citizen hostility towards the central bank policy increases and helicopter money becomes unlikely. Such situation is more likely to occur if the government in charge is made up of career-concerned politicians and citizens are heterogeneous. The framework is applied in discussing the possibility of having the European Central Bank as buyer of Perpetual Bonds.
Classification-JEL: D72, D78, E31, E52, E58, E62
Keywords:helicopter helicopter money, monetary policy, fiscal policy, political economy, central bank independence, modern monetary theory, populism, European Central Bank
Length: 34
Number: 20138
Creation-Date: 2020
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp20138.pdf
File-Format: application/pdf
File-Size: 572
Handle: RePEc:baf:cbafwp:cbafwp20138