Quantitative easing and helicopter money are economically distinct monetary policies.
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Reference material distinguishes between quantitative easing and helicopter money, noting that they differ in how money is created and who controls its expenditure.
We discuss the impact of a Covid-19-like shock on a simple model economy, described by the previously developed Mark-0 Agent-Based Model. We consider a mixed supply and demand shock, and show that depending on the shock parameters (amplitude and duration), our model economy can display V-shaped, U-shaped or W-shaped recoveries, and even an L-shaped output curve with permanent output loss. This is due to the economy getting trapped in a self-sustained "bad" state. We then discuss two policies that attempt to moderate the impact of the shock: giving easy credit to firms, and the so-called helicopter money, i.e. injecting new money into the households savings. We find that both policies are effective if strong enough. We highlight the potential danger of terminating these policies too early, although inflation is substantially increased by lax access to credit. Finally, we consider the impact of a second lockdown. While we only discuss a limited number of scenarios, our model is flexible and versatile enough to accommodate a wide variety of situations, thus serving as a useful exploratory tool for a qualitative, scenario-based understanding of post-Covid recovery. The corresponding code is available on-line.
Usage notes: While very similar to quantitative easing (QE), helicopter money differs from QE in how the central bank creates money and who gets to spend the money that is created. With QE the central bank creates money by making a loan: buying bonds or some similar instrument, and then (usually) rebating the interest on that instrument. Ultimately, the money is repaid to the central bank, which produces a net increase in the monetary base. Helicopter money does not use any financial instrument. The net effect in both cases is that the central bank creates money, thereby increasing the monetary base. However, in the case of QE, the issuer of the bond (usually the central government) gets to spend the money, while with helicopter money, the central bank controls how the money is spent.
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