Morning Must-Read: Willem H. Buiter: The Simple Analytics of Helicopter Money: Why It Works–Always

Willem H. Buiter: The Simple Analytics of Helicopter Money: Why It Works – Always: “A permanent/irreversible increase in the nominal stock…

…of fiat base money rate which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury…. Three conditions must be satisfied for helicopter money always to boost aggregate demand. First, there must be benefits from holding fiat base money other than its pecuniary rate of return. Second, fiat base money is irredeemable – viewed as an asset by the holder but not as a liability by the issuer. Third, the price of money is positive. Given these three conditions, there always exists – even in a permanent liquidity trap – a combined monetary and fiscal policy action that boosts private demand – in principle without limit. Deflation, ‘lowflation’ and secular stagnation are therefore unnecessary. They are policy choices.

August 21, 2014

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