Helicopter Money, Inflation Targets Too Quantitative Easing

For economists

                I’m oft asked almost helicopter money, too occasionally at that topographic point are calls for this policy to locomote implemented. (Tyler Cowen too Brad DeLong. (There is a newspaper past times Buiter (NBER 10163) which talks almost this issue, simply my pdf reader does non recognise the WPMathA font, thus I cannot read the maths. If anyone tin laissez passer on notice assistance me hither I’d locomote rattling grateful.)

                In this rattling uncomplicated context, calls for helicopter coin are equivalent to calls for a temporary increment inwards the inflation target. The policy alone industrial plant because inflation increases. If the regime printed coin to pass on its ain goods too services inwards the root period, thus at that topographic point would locomote a instantly positive demand consequence inwards improver to the inflation effect, simply this instantly demand consequence could locomote achieved past times a balanced budget financial expansion, without the demand to impress money. 

                If the regime cutting taxes past times printing money, simply thus reduced the stock of coin dorsum over again inwards the instant catamenia past times raising taxes, thus naught happens inwards this uncomplicated model. The fact that at that topographic point is to a greater extent than coin inwards the root catamenia does nothing, too consumers are no improve off. We create non convey whatever of the imperfections too margins inwards this uncomplicated model that QE is idea to operate on inwards the existent world.

QE involves a temporary telephone commutation of bonds for money, if nosotros consolidate the regime too primal bank. How create nosotros know it’s temporary? First, because primal bankers order it is. But, instant too to a greater extent than importantly, because primal banks look totally wedded to their inflation targets. Data on inflation expectations advise this is every bit good what the mortal sector believes. If QE was non temporary, nosotros would instruct the equivalent of helicopter money. In the QE case, too different helicopter money, the bond stock falls, simply nosotros tin laissez passer on notice instruct dorsum to helicopter coin past times cutting taxes past times issuing bonds, which every bit the model is Ricardian does nothing.

                So it seems to me that calls for helicopter coin are isomorphic to calls for a temporary increment inwards the inflation target, too none the improve or worse for that. But if I’m missing something of import here, create allow me know.