Helicopter money

Abstract: This thesis has been conducted through a qualitative research method in order to explain the concept of helicopter money and how to implement it in Sweden in line with present law. Milton Frideman was the first to coin the concept of helicopter money. His theory was that a permanent increase of the monetary base via money transferring to households would increase the aggregate demand and consequently result in an increase of the inflation level. Further Ben Bernanke has developed this theory to not only include transferring money to households but to the government in order to enable an increase in public spending and increase of inflation. Helicopter money is a form of direct monetary financing, which is illegal in Sweden today. There are ways to implement it though by doing an implicit transfer to the government through purchases of treasury bonds that are held in infinity. Helicopter money therefore requires cooperation between the government and the Riksbank. In order for helicopter money to be a sufficient tool the money that are being transferred needs to be consumed. Helicopter money has the unique quality that it’s irredeemable. Which result in an asymmetric treatment of the money, which mean that households never have to repay these money and therefore the consumption propensity rises. Helicopter money also weakens the currency, which results in an increase of inflation. Transferring money to the households would probably increase the inflation level but it also entails risks. If we on the other hand transfer the money to the government we can be absolutely certain that inflation will rise. The best way to implement helicopter money in order to achieve a higher inflation and at the same time taking present law into account is therefore to make an implicit transfer to the government. A good communication and explanation of the intentions are of great importance in order to retain the trust of the government and institutions.