Abstract
ABSTRACTAccording to some economists, central banks should use ‘helicopter money’ to boost inflation (expectations). Based on a survey among Dutch households, we examine whether respondents would spend the money received via such a transfer. Our results show that respondents expect to spend about 30% of the transfer and that helicopter money would hardly affect inflation expectations. Furthermore, whether transfers come from the central bank or the government makes no difference. Finally, our results suggest that the effect of helicopter money on public trust in the ECB is ambiguous.
Highlights
At the end of 2014, inflation in the euro area dropped below zero and thereafter inflation remained persistently low for several years and well below the European Central Bank’s (ECB) aim of price stability
The results suggest that the effect of helicopter money on public trust in the ECB is ambiguous
The results suggest that ECB policies to purchase government and corporate debt reduce trust in the ECB somewhat more than does helicopter money
Summary
At the end of 2014, inflation in the euro area dropped below zero and thereafter inflation remained persistently low for several years and well below the European Central Bank’s (ECB) aim of price stability (i.e. an inflation rate in the medium term of below but close to 2%). In January 2015, the Governing Council of the European Central Bank, decided to launch the expanded asset purchase program (EAPP), better known as quantitative easing (QE). Several observers have expressed doubts that the ECB’s QE will achieve the desired sustained adjustment of inflation (expectations) in line with the ECB’s aim for price stability (see Blinder et al 2017 for a discussion). Some economists have suggested the ECB to use ‘helicopter money’, i.e. the monetary financing of government expenditure or transfers to households.. Some economists have suggested the ECB to use ‘helicopter money’, i.e. the monetary financing of government expenditure or transfers to households. According to Borio, Disyatat, and Zabai (2016), ‘helicopter money is best regarded as an increase in economic agents’ nominal purchasing power in the form of a permanent addition to their money balances.’
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