Among the distinguished guests speaking at this year’s Rocky Mountain Economic Summit is Paul McCulley, chairman of the Global Society of Fellows at the Global Interdependence Center.
As a preview to the economic expertise McCulley will bring to the event, we thought we’d share one of his latest papers on Helicopter Money, which examines fiscal-monetary cooperation.
Hope you enjoy it! We’ll include a link to the full analysis below.
Helicopter Money: Or How I Stopped Worrying and Love Fiscal-Monetary Cooperation
“During private deleveraging cycles, monetary policy will largely be ineffective if it is aimed at stimulating private credit demand. What matters is not monetary stimulus per se, but whether monetary stimulus is paired with fiscal stimulus (otherwise known as helicopter money) and whether monetary policy is communicated in a way that helps the fiscal authority maintain stimulus for as long as private deleveraging continues.
“… Fiscal dominance and central bank independence come in secular cycles and mirror secular private leveraging and deleveraging cycles, respectively. That is, as long as there will be secular debt cycles, central bank independence will be a station, not a final destination.
“This paper builds on our earlier work that provided an historical overview of episodes when orthodoxies came in conflict with democracy and were overruled by politics.
“In our present work, we transition from using history as guidance to identify the optimal policy mix du jour and focus instead on explaining the economic logic of why orthodoxies will continue to be discarded in the advanced world and why the democratic process will
ultimately “corner” policymakers into fiscal-monetary cooperation. In the process, we derive a policy map that depicts where specific advanced countries’ fiscal-monetary policy mixes are relative to each other and where they are relative to helicopter money.”
If you’re interested, here’s a link to McCulley’s complete analysis.