Abstract
We analyse the money-financed fiscal stimulus implemented in Venice during the famine and plague of 1629–31, which was equivalent to a ‘net-worth helicopter money’ strategy – a monetary expansion generating losses to the issuer. We argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed. This episode highlights the redistributive implications of the design of macroeconomic policies and the role of political economy factors in determining such designs.
Highlights
Whenever economic conditions become really critical, the concept of helicopter money frequently re-emerges – and the recent COVID- crisis was no exception (Masciandaro )
While followers have agreed on the definition of helicopter money as ‘a money-financed fiscal stimulus ... that ... requires neither an increase in the stock of government debt nor higher taxes, current or future’ (Galí, p. ), they have diverged in their views of the design of such a policy
The monetary authority’s assets consist of its portfolio of marketable government bonds (TB),[2] its bullion and foreign reserves (BR) and its direct loans to the Treasury (TL); its liabilities consist of its net worth (BW),[3] the Treasury’s deposits (TD) and the deposits of the private sector – i.e. the monetary base (MB).[4]
Summary
Whenever economic conditions become really critical, the concept of helicopter money frequently re-emerges – and the recent COVID- crisis was no exception (Masciandaro ). In May the government created a new public bank – the Banco del Giro – with floating (short-term) public debt and coins on the asset side of its balance sheet and deposits on the liability side
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