Helicopters and the Neutrality of Money

21 Pages Posted: 6 Jan 2015 Last revised: 2 Jul 2017

Cameron Harwick

George Mason University - Department of Economics

Date Written: June 15, 2016


Discussions of adjustments to the quantity of money tend to take for granted the method by which new money enters the economy. Milton Friedman, for example, famously assumed the central bank distributed money directly to agents via helicopter in order to abstract away from relative price effects, in contrast to the real world, where expansion almost always takes place through financial markets. This paper compares the distribution and relative price effects of expansion by helicopter and through financial markets. The distribution effects of the former will in fact be more severe than those of the latter, except in the sort of representative agent model Friedman used. This result is illustrated using an agent-based model in order to introduce heterogeneity in the demand for cash balances. Finally, we discuss the relevance of the metaphor to fiscal policy, monetary regimes, and money supply norms for cryptocurrencies, which – unlike any modern currencies – must distribute changes in the money supply without the use of financial markets.

Keywords: Money, Central Bank, Monetary Policy, Crypto-Currency, Bitcoin

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

Suggested Citation

Harwick, Cameron, Helicopters and the Neutrality of Money (June 15, 2016). Available at SSRN: https://ssrn.com/abstract=2545488 or http://dx.doi.org/10.2139/ssrn.2545488

Cameron Harwick (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

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