Discussion Paper

No. 2014-24 | June 13, 2014
The Simple Analytics of Helicopter Money: Why It Works – Always


The author provides a rigorous analysis of Milton Friedman’s parable of the 'helicopter' drop of money – a permanent/irreversible increase in the nominal stock of fiat base money which respects the intertemporal budget constraint of the consolidated Central Bank and Treasury – the State. Examples are a temporary fiscal stimulus funded permanently through an increase in the stock of base money and permanent QE – an irreversible, monetised open market purchase by the Central Bank of non-monetary sovereign debt. 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 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.

JEL Classification:

E2, E4, E5, E6, H6


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Cite As

Willem H. Buiter (2014). The Simple Analytics of Helicopter Money: Why It Works – Always. Economics Discussion Papers, No 2014-24, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2014-24

Comments and Questions

Anonymous - Referee Report 1
July 30, 2014 - 11:29

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Willem Buiter - Reply to Referee Report 1
August 04, 2014 - 12:58

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Willem Buiter - Revised Version
August 04, 2014 - 13:00

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Anonymous - Referee Report 2
August 04, 2014 - 15:45

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Willem Buiter - Reply to referee 2
August 07, 2014 - 08:35

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Willem Buiter - Revised version 2
August 07, 2014 - 08:38

see attached file