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Helicopters and the Neutrality of Money

24 Pages Posted: 6 Jan 2015 Last revised: 22 Aug 2017

Cameron Harwick

George Mason University - Department of Economics

Date Written: August 21, 2017


Models of monetary expansion, following Friedman (1969), tend to abstract away from the relative price effects of monetary policy by assuming that the central bank distributes money directly to agents via helicopter. However, in light of the recent entertainment of helicopter drops as a potential monetary policy tool, this paper argues that it would be a mistake to conclude from such models that actual helicopter drops are relative-price neutral. Indeed, they are likely to be significantly more distortive than open market operations, a fact obscured by the representative agent construction used in the standard cash-in-advance construction. This paper develops a computational heterogeneous-agent model to compare the relative price effects of helicopter drops and open market operations, and to avoid the inability of the standard cash-in-advance model to account for persistent wealth effects. The results highlight the key role of financial systems in distributing changes in the money stock with minimal economic disturbance.

Keywords: Money, Central Bank, Monetary Policy, Relative Prices, Agent-Based Model, Crypto-Currency, Bitcoin

JEL Classification: D31, D61, E31, E41, E52, E58

Suggested Citation

Harwick, Cameron, Helicopters and the Neutrality of Money (August 21, 2017). Available at SSRN: or

Cameron Harwick (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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