Afternoon Must-Read: Jérémie Cohen-Setton: Permanent QE and Helicopter Money

is believed to matter (beyond the portfolio channel) for inflation and growth… the associated monetary base growth needs to be permanent… the pros and cons of helicopter money… as compared with permanent QE…. David Beckworth writes that… [in] the Fed’s quantitative easing programs… the large expansion of the monetary base under QE is temporary… [but] for QE to have made a meaningful difference the associated monetary base growth needed to be permanent. This… is the standard view in modern macroeconomics… Woodford, Svensson, and Obstfeld among others)….

Paul Krugman writes a stripped down version of his 1998 model to make explicit that QE is expected to be effective only to the extent that the expansion in the money base is permanent…. Simon Wren-Lewis writes that the self-imposed institutional setup of strict separation between monetary and fiscal policy prevents either central banks or governments doing money-financed fiscal stimulus…. Mark Blyth and Eric Lonergan… Keynes proposed burying bottles of bank notes in old coal mines…. Milton Friedman also saw the appeal of direct money transfers…. Dylan Mattews writes that the idea is most closely associated with former Fed chair Ben Bernanke….

Mike Woodford writes that the same equilibrium can be supported by traditional quantitative easing or by helicopter money…. Willem Buiter writes that QE relaxes the intertemporal budget constraint of the consolidated Central Bank and Treasury…. Mike Woodford writes that the effects would only be different if, in practice, the consequences for future policy were not perceived the same way by the public… proposes a policy that delivers exactly the same effect as helicopter money, but would preserve the traditional separation between monetary and fiscal policy… a bond-financed fiscal transfer, combined with a commitment by the central bank to a nominal GDP target path…