Helicopter Drops of Money under Secular Stagnation: From Ponzi to Pigou

Under secular stagnation, are helicopter drops of money inflationary? Are they stimulative? This paper shows that it depends on whether or not a Ponzi scheme of government liabilities is sustainable. In the absence of a Ponzi scheme, despite being in a permanent liquidity trap, any helicopter drop of money must be inflationary. Conversely, when a Ponzi scheme can be sustained, the helicopter drop can leave inflation unchanged. In that case, it raises household wealth, which stimulates aggregate demand through the Pigou effect. Finally, continuous helicopter drops of money must bring secular stagnation to an end.