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Is the time ripe for helicopter money? Growth impact and financial stability risks of outright monetary transfers

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  • Temperini, Jacopo
  • D'Ippoliti, Carlo
  • Gobbi, Lucio

Abstract

We study the effectiveness of helicopter money, once a thought experiment that is now a feasible option given new digital technologies. We consider the effects of central bank digital currencies (CBDC) from a theoretical point of view, by means of a stock-flow consistent model of a growing open economy. We compare the effectiveness of this tool with that of traditional fiscal and monetary policies. We find that issuing a CBDC by expanding the central bank's balance sheet can have a durable impact on GDP and crucially, it allows for the activation of a new transmission channel, which depends on the sensitivity of investment and of the interest rate to firms’ leverage. But it might reduce the demand for bank deposits, and even more crucially for bank loans, thus creating challenges for financial stability.

Suggested Citation

  • Temperini, Jacopo & D'Ippoliti, Carlo & Gobbi, Lucio, 2024. "Is the time ripe for helicopter money? Growth impact and financial stability risks of outright monetary transfers," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 24-36.
    • Handle: RePEc:eee:streco:v:69:y:2024:i:c:p:24-36
    DOI: 10.1016/j.strueco.2023.11.003
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    2. Zhang, Ying & Gong, Bing & Zhou, Peng, 2024. "Centralized Use of Decentralized Technology: Tokenization of Currencies and Assets," Cardiff Economics Working Papers E2024/14, Cardiff University, Cardiff Business School, Economics Section.

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    More about this item

    Keywords

    Helicopter money; Central bank Digital Currencies; Monetary policy; Transmission channels;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G0 - Financial Economics - - General
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory

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