What is “Helicopter Money”?

Helicopter Dropping USD symbols, quantitative easing representationIn our last post, we mentioned quantitative easing as one of the monetary policy tools that can be used to stimulate the economy out of a recession. QE became associated with helicopter money because both are considered unconventional monetary policy.

The term “helicopter money” is attributed to the economist Milton Friedman, who used the term in his famous 1969 paper, “The Optimum Quantity of Money.” In the paper, Friedman used the metaphor of dropping money from a helicopter to illustrate the idea of directly giving money to people as a way of stimulating the economy.

Friedman’s idea was that the central bank could create new money and distribute it to individuals or households, who could then use the money to spend, save, or invest as they saw fit. By increasing the money supply and boosting demand, this could help to stimulate economic growth and offset the effects of a recession.

The term “helicopter money” gained renewed attention during the global financial crisis of 2008-2009, and has been used in recent years to refer to a variety of policy proposals for directly providing money to individuals or households, such as through direct cash transfers or other forms of social assistance.

Economist and former Fed chair Ben Bernanke gave a 2002 speech titled “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” in which he discussed the possibility of using unconventional monetary policy tools, including “helicopter drops” of money, to combat deflation and stimulate the economy.

While Bernanke did not use the term “helicopter money” directly in the speech, he did describe a scenario in which the central bank could drop money from a helicopter or otherwise distribute it directly to individuals or households, as a way of increasing demand and boosting economic activity.

Bernanke suggested that such a policy could be effective in fighting deflation, which is a situation in which prices and economic activity decline, and can be difficult to reverse.

The idea of helicopter money has been associated with unconventional monetary policy measures, including QE, as policymakers and economists have searched for ways to support economic growth and stability.

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