Financial Auditorium
Helicopter drops "Helicopter money" is proposed as an alternative to create stability when interest rates are near zero and the economy shows signs of significant weakness, or enters into recession.
Prof. Asoc. Dr. Arbi AGALLIU Head of Department of Finance & Economics EUROPEAN UNIVERSITY OF TIRANA, UET
“Helicopter drops”, also known as helicopter money, is a hypothetical, unconventional tool of monetary policy that involves printing large sums of money and distributing it to the public in order to stimulate the economy. Helicopter drop is largely a metaphor for unconventional measures to jumpstart a country’s economy during difficult times, like an economic crisis, accompanied with deflationary periods1. Although such similar ideas or concepts have been discussed earlier by different economists, "helicopter drop" is used for the first time by Nobel laureate Milton Friedman, in an essay written in 1969, assuming with imagination tones, as printing money and throwing them from the helicopter. Mr. Friedman used the term “helicopter” as a metaphor to argue that institutions, which have the 1
right to issue money, may create inflation by printing money, enough to spur consumption, thus producing a positive effect in the economic chain, with the economic growth as the ultimate goal. "Helicopter money", he notes, could be a possible option for any country which is struggling with deflation and with sluggish economic growth. In his famed essay: "The Optimum Quantity Of Money" the Nobel prizewinner (Mr. Friedman) says: Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” The second assumption was made by Mr. Friedman to highlight the fact that such instrument cannot be used continuously, but rarely, or only once just when the economy is in recession and hopes for economic recovery are fading. Although the above – mentioned term was first mentioned by Mr. Friedman, it was popularized by Mr. Ben Bernanke, Federal Reserve Governor, in his November 2002 speech. During that
speech to the "National Economists Club", Mr. Bernanke defined deflation “as a side effect of a collapse in aggregate demand, or such a severe curtailment in consumer spending that producers would have to cut prices on an ongoing basis to find buyers”. "Helicopter money" is proposed as an alternative to create stability when interest rates are near zero and the economy shows signs of significant weakness, or enters into recession. When using the term "helicopter drops" economists refer to two policies that are basically different from each - other. The first group of policies emphasizes the permanent monetization of budget deficit, while the second group of policies includes the central bank. The second group of policies emphasizes direct transfers to the private sector by the central bank, without direct involvement of fiscal authorities. This type of instrument is also called citizen’s dividend. There are numerous pros and cons views and theories about such monetary instrument. Some time ago, Mr. Mario Draghi, President of European Central Bank noted that "helicopter money" can be performed by all central banks
This is a situation similar to the actual one, Albania is currently going through. This definition is taken from www. investopedia.com.
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