NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Helicopter Money: Irredeemable Fiat Money and the Liquidity Trap

Willem H. Buiter

NBER Working Paper No. 10163
Issued in December 2003
NBER Program(s):   EFG   ME

The paper provides a formalisation of the monetary folk proposition that fiat base money is an asset of the holder but not a liability of the issuer. The issuance of irredeemable fiat base money can have pure fiscal effects on private demand. With irredeemable fiat base money, weak restrictions on the monetary policy rule suffice to rule out liquidity trap equilibria - equilibria in which all current and future short nominal interest rates are at their lower bounds. In a model with flexible prices, liquidity trap equilibria cannot occur as long as the private sector does not expect the monetary authority to reduce the nominal money stock to zero in the long run. In a New-Keynesian model out provided the private sector expects the authorities not to reduce the nominal stock of base money below a certain finite level in the long run. Liquidity trap equilibria can exist if and for as long as the private sector expects that the monetary authorities will ultimately reverse any current expansion of the monetary base in present value terms.

download in pdf format
   (443 K)

email paper

This paper is available as PDF (443 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10163

Users who downloaded this paper also downloaded these:
Uhlig w16416 Economics and Reality
Hall w16741 The Long Slump
Teles and Uhlig w16393 Is Quantity Theory Still Alive?
Devereux, Senay, and Sutherland w17796 Nominal Stability and Financial Globalization
Lorenzoni w12898 News Shocks and Optimal Monetary Policy
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us