Abstract
This paper explores the link between fiscal-monetary policy interaction and deflation. The key feature of this paper is that the central bank's balance sheet is separated from the government's budget constraint. As a result, government bonds are held entirely by households, and money is supplied via helicopter drops. This paper finds that helicopter money can be used as a subsidy to purchasing government bonds. Then, the central bank's commitment to a low nominal interest rate implies that it must inject money to keep the price of government bonds from falling when debt increases. The injection of helicopter money also increases the demand for real money, raising the value of money.
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