• “Helicopter money” is a term coined by Milton Friedman in his 1969 book, “The Optimum Quantity of Money”. It illustrates the monetary causes of inflation.

  • The term owes its popularity to Ben Bernanke, who envisioned it as a tool for combating deflation. It consists of an expansionary fiscal policy financed by the central bank.

  • Unlike the equilibrium situation imagined by Milton Friedman, in which the increase in money supply does not have any effect on real variables, Ben Bernanke envisions a deflationary environment in which the economy is operating below potential. Here, a helicopter money policy could positively affect real growth.

  • To evaluate its effectiveness, a helicopter money policy must be compared to a debt-financed fiscal stimulus combined with a quantitative easing programme (QE) by the central bank.

  • For there to be a difference, we must first assume that the behaviour of economic agents is based on rational expectations. Second, we must assume that helicopter money is synonymous with a permanent increase in money supply. This is equivalent to raising the central bank’s inflation target, which can also be achieved by promising infinite QE.


 

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