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Helicopter Drops and Liquidity Traps

Working Paper 797 | Revised April 14, 2023

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Authors

photo of Manuel Amador
Manuel AmadorMonetary Advisor
photo of Javier Bianchi
Javier BianchiMonetary Advisor
Helicopter Drops and Liquidity Traps

Abstract

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. In our model, even with balance sheet constraints, helicopter drops are at best irrelevant under commitment.