Money Financed Public Expenditure or Helicopter Money? Chiara Punzo…

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Money Financed Public Expenditure or Helicopter Money?

Chiara Punzo (Catholic University of Milan)
and
Lorenza Rossi (University of Pavia)

The rapid spread of covid-19 has called into question standard policy instruments. Government expenditure financed through money creation versus the so-called helicopter drop are two of the most discussed instruments to contrast the rapid drop of supply and demand all over the world. This note argues that the effectiveness of the two instruments firstly depends on their redistributive effects that indirectly affect the aggregate demand and secondly on the state of the economy. A government spending financed through money creation is more effective in a ZLB scenario, while a helicopter drop becomes the most effective in normal times.

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