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Case Study

SHOULD OR SHOULD NOT THE CENTRAL BANK DROP 'HELICOPTER MONEY' TO STIMULATE COVID-19 AFFECTED ECONOMIES? A DILEMMA

Dr.B.Venkatraja, Associate Professor - Economics, SDM Institute for Management Development, Mysore
Monetary Policy, Helicopter Money, Central Bank, Economic Crisis, Sluggish Economy, COVID-19, Macro economy, Recession, Monetary Stimulus

Abstract:

A sudden and unexpected external shock administered by super contagious corona virus disease (COVID 19) across the globe has caused a health emergency. Owing to its high velocity of transmission, national governments could do little but intervene with lockdowns and shutdowns. The experiences of most of the countries so far, are such that lockdown did little in controlling the pandemic, instead damaging the economies heavily, irrespective of the level of growth. Declining investment, increasing unemployment, rising poverty, widening economic inequality, growing food and nutritional insecurity, unaffordable health services, fast decreasing personal income and purchasing power are the visible impacts of the COVID pandemic during the initial six months. Realising the need to protect the 'living' of the people along with the 'life', the countries are calling off the lockdown and reopening in a phased manner amidst intensification in the pandemic. With the beginning of unlock, the economic activities resumed in a few sectors and the growth is gradually gaining momentum.

However, the consumption spending and aggregate demand continues to contract, and many countries are speculated to head towards a worst recession. If the national governments are working with fiscal stimulus to rejuvenate the ailing economies, the central bankers are complimenting with multiple conventional monetary policy strategies. The severity of the impact of COVID 19 on the economies is such that these efforts have been proved less fruitful as the industrial and national macro-economic outlook appear to be bleak as forecasted by IMF and other leading agencies. Since it is certain that the economic uncertainty will stay for long, neither the fiscalstimulus nor the conventional monetary policies are feasible. The governments are concerned with the widening fiscal deficit, and the eventual sovereign debt crisis. If many central bankers already have either low bound or zero bound interest rates, a few others have kept them at negative zone. Even the quantitative easing measures are applied, and their repeated interventions are not feasible. Since, all possible measures have dried up, discussions and debates are brewing up on whether the time is up to the central bankers to drop 'helicopter money' as a last monetary weapon in containing the deflation and jump start the economies.

Learning objectives

• The national economies have undergone sever economic contraction owing to COVID-19 pandemic. The contraction is multi-sectoral and not confined to any specific sector of the economies. This makes the task of reviving the economies even more challenging. Since the countries have widened fiscal deficit, the monetary policies have become more relevant. However, the conventional monetary tools have already exhausted. The key objective of the case is to analyse the background and explore whether helicopter money can be an economically prudent monetary mechanism to react to the COVID-19 pandemic affected economies. The key objective of the case is to expose the participants to debates on the alternative mechanism to traditional expansionary tools during deep economic contractions like COVID-19.

  • Pub Date:
    25 Aug 2021
  • Source:
    SDMIMD
  • Discipline:
    Financial Management
  • Product#:
    1636
  • Keywords:
    Monetary Policy, Helicopter Money, Central Bank, Economic Crisis, Sluggish Economy, COVID-19, Macro economy, Recession, Monetary Stimulus
  • Length:
    Pdf : 12 page(s) ,

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