Helicopter Drop

AAA

DEFINITION of 'Helicopter Drop'

A hypothetical, unconventional tool of monetary policy that involves printing large sums of money and distributing it to the public in order to stimulate the economy. Helicopter drop is largely a metaphor for unconventional measures to jumpstart the economy during deflationary periods. While “helicopter drop” was first mentioned by noted economist Milton Friedman, it gained popularity after Ben Bernanke made a passing reference to it in a November 2002 speech, when he was a new Federal Reserve governor. That single reference earned Bernanke the sobriquet of “Helicopter Ben,” a nickname that stayed with him during much of his tenure as a Fed member and Fed chairman.

 

INVESTOPEDIA EXPLAINS 'Helicopter Drop'

Bernanke’s reference to “helicopter drop” occurred in a 2002 speech that he made to the National Economists Club, about measures that could be used to combat deflation. In that speech, Bernanke defined deflation as a side effect of a collapse in aggregate demand, or such a severe curtailment in consumer spending that producers would have to cut prices on an ongoing basis to find buyers. He also said the effectiveness of anti-deflation policy could be enhanced by cooperation between monetary and fiscal authorities, and referred to a broad-based tax cut as “essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”

Even though Bernanke’s critics subsequently used this reference to disparage his economic policies, they were effectively silenced by his adroit handling of the U.S. economy during and after the Great Recession of 2008-09. Faced with the biggest recession since the 1930s, and with the U.S. economy on the brink of catastrophe, Bernanke used some of the very same methods outlined in his 2002 speech to combat the slowdown, such as expanding the scale and scope of the Fed’s asset purchases.

Bernanke also embarked on successive rounds of “quantitative easing” (QE) that injected trillions of dollars into the U.S. economy from 2009 onwards through sustained purchases of mortgage-backed bonds and Treasuries. These QE measures differ from the helicopter drop in that the Federal Reserve has a greater degree of control over their eventual reversal.

RELATED TERMS
  1. Monetary Item

    An asset or liability carrying a value in dollars that will not ...
  2. Quantitative Easing 2 – QE2

    The second round of the Federal Reserve's monetary policy used ...
  3. Monetary Accord Of 1951

    A 1951 agreement between the U.S. Secretary of the Treasury and ...
  4. Monetary Control Act

    Title 1 of a two-title act passed in 1980 that represented the ...
  5. Monetary Aggregates

    Broad categories measuring the total value of the money supply ...
  6. Monetary Policy

    The actions of a central bank, currency board or other regulatory ...
RELATED FAQS
  1. What is the Federal Reserve Board's market risk capital rule?

    The Federal Reserve Board’s market risk capital rule, or MRR, sets forth the capital requirements for banking organizations ... Read Full Answer >>
  2. How does the law of supply and demand affect monetary policy in the United States?

    The law of supply and demand affects monetary policy in the United States through the adjustment of interest rates. Interest ... Read Full Answer >>
  3. What nations other than the U.S. have risk-free interest rates?

    Countries other than the United States that have risk-free interest rates are Canada, the European Union, Japan, the United ... Read Full Answer >>
  4. What are the risks associated with investing in a treasury bond?

    It's common for financial analysts and investment publications to refer to U.S. Treasury bonds (T-bonds) as risk-free investments. ... Read Full Answer >>
  5. How did the Volcker Rule affect investment banks, and how does this lower the chances ...

    The Volcker Rule affected investment banks by curtailing their ability to engage in certain types of trading. Specifically, ... Read Full Answer >>
  6. How do commercial banks us the 'money multiplier' to create money?

    In a fractional reserve banking system, commercial banks are permitted to create money by allowing multiple claims to assets ... Read Full Answer >>
Related Articles
  1. Economics

    What Is Fiscal Policy?

    Learn how governments adjust taxes and spending to moderate the economy.
  2. Economics

    The Taylor Rule: An Economic Model For Monetary Policy

    This interest rate forecasting model has helped central banks around the world adjust their rates to balance out inflation.
  3. Investing News

    Quantitative Easing: Does It Work?

    This controversial monetary policy has been used by some of the world's most powerful economies. But does it work?
  4. Economics

    Do Deflationary Shocks Help Or Hurt The Economy?

    Find out how deflationary shocks can both benefit and hurt consumers and businesses.
  5. Economics

    A Look At Fiscal And Monetary Policy

    There's a debate over which policy is better for the economy. Find out which side of the fence you're on.
  6. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  7. Fundamental Analysis

    Protect Your Portfolio Against Inflation And Deflation

    Inflation and deflation are opposite sides of the same coin. When both are threatening, here's what to do to keep your portfolio safe.
  8. Mutual Funds & ETFs

    The Upside Of Deflation

    Deflation has continued to pop up throughout economic history - but is that such a bad thing?
  9. Fundamental Analysis

    An Introduction To The International Monetary Fund (IMF)

    Chances are you've heard of the IMF. But what does it do, and why is it so controversial?
  10. Forex Education

    The Louvre Accord: The Fight Against U.S. Dollar Deflation

    After the Plaza Accord, the U.S. dollar continuously declined. In an effort to put on the brakes, the G6 convened.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center