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Helicopter Drops and Liquidity Traps

Author

Listed:
  • Manuel Amador
  • Javier Bianchi

Abstract

During a liquidity trap, increases in the money supply have no real effects, as the nominal interest rate has reached its lower bound. We propose a theory of how helicopter drops of money can be effective during a liquidity trap. We develop a New Keynesian monetary model where the fiscal and monetary authorities are separated, and the latter faces balance sheet constraints. If the monetary authority can commit, helicopter drops are unnecessary in a liquidity trap, even under balance sheet constraints. However, we show that helicopter drops can help stabilize the economy when the monetary authority lacks commitment.

Suggested Citation

  • Manuel Amador & Javier Bianchi, 2023. "Helicopter Drops and Liquidity Traps," NBER Working Papers 31046, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31046
    Note: EFG IFM ME
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    Cited by:

    1. Benigno, Pierpaolo & Nisticò, Salvatore, 2025. "The economics of helicopter money," Journal of Monetary Economics, Elsevier, vol. 152(C).

    More about this item

    JEL classification:

    • 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
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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