Helicopter Drops and Liquidity Traps
Working Paper 31046
We show that if the central bank operates without commitment and faces constraints on its balance sheet, helicopter drops can be a useful stabilization tool during a liquidity trap. With commitment, even with balance sheet constraints, helicopter drops are, at best, irrelevant.
We thank V.V. Chari and Anmol Bhandari for conversations that led us to write this paper. We also thank Mark Aguiar and Marco Bassetto for helpful discussions. Sang Min Lee provided excellent research assistance. The views expressed here are entirely those of the authors. They do not necessarily represent the views of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, or the National Bureau of Economic Research.