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Ecb Helicopter Money: Economic And Political Economy Arithmetics

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  • Donato Masciandaro

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.

Suggested Citation

  • Donato Masciandaro, 2020. "Ecb Helicopter Money: Economic And Political Economy Arithmetics," BAFFI CAREFIN Working Papers 20138, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:baf:cbafwp:cbafwp20138
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    References listed on IDEAS

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    More about this item

    Keywords

    helicopter helicopter money; monetary policy; fiscal policy; political economy; central bank independence; modern monetary theory; populism; European Central Bank;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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