Home breaking news Dr.Hasan Aden. oo qoraal ka diyaariayay.dhaqaalaha iyo saamaynta cudurka Coron viruska ku Yeeshay Aduunka

Dr.Hasan Aden. oo qoraal ka diyaariayay.dhaqaalaha iyo saamaynta cudurka Coron viruska ku Yeeshay Aduunka

The case for ‘helicopter money’ – the unthinkable in macroeconomics. Dr
Hassan Adan

As the pandemic crisis deepens, there is an urgency to limit the economic
carnage. The conventional approach of raising aggregate demand through a
combination of fiscal and monetary policy is mildly put deemed inept1
. While
announced government assistance in the form of a non-repayable transfer
during the period of forced inactivity would only go as far as the pandemic is
short-lived and public debt burdens remain bearable.
The alternative is pretty straightforward but at the same time unthinkable: a
coordinated money-financed fiscal intervention commonly known as ‘helicopter
money’ in which the central bank credits the government’s account for the
amount of the additional spending.
Aside from the political and technical difficulties involved in determining and
distributing the additional spending across industries and firms, the real
obstacle remains a policy buy-in from central bankers.
In normal times, central bankers would enthusiastically share their views on
their operational independence and strong price stability mandate loud and
clear with anyone willing to listen. ‘Helicopter money’ would in many central
bankers’ eye be reckless if not borderline illegal in many jurisdictions.
However, these are not normal times. In a recent CEPR policy note2

, Jordi Gali
– one of the main figures in New Keynesian macroeconomics- argues the case
for money-financed fiscal intervention in the face of this extraordinary crisis,
citing the ECB’s decision to buy government debt during the European debt crisis
as an occasion in which rules that were considered sacred had to be relaxed.

This begs the questions: are we any closer to seeing money dropping down from
helicopters anytime soon and is the unthinkable now thinkable? The former is
just wishful thinking –money does not drop down from helicopters nor grows
on trees. Considering the latter, at least for now, the ECB’s response to the
coronavirus outbreak signals some flexibility in policy tools.
Ms Lagarde’s U-turn from her initial statement of “it was not the job of the
central bank to narrow spreads” and to launching a gigantic new package of
quantitative easing (QE) worth €750bn – offers reasons for optimism in making
‘helicopter money’, widely held as taboo among most economists and
policymakers, a feasible policy tool.

Dr Hassan Adan is an Economic Adviser at the Saudi Ministry of Economy and Research
Fellow at Cambridge University.

  1. Hamilton, S & Veuger S ” A recession is a public health necessity – let’s keep it
    short,” VoxEU.org, 21 March.
  2. Gali, J (2020), ” Helicopter money: The time is now,” VoxEU.org, 17 March

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