Loading the player...

DEFINITION of 'Helicopter Drop (Helicopter Money)'

A helicopter drop, or helicopter money, is 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.

BREAKING DOWN 'Helicopter Drop (Helicopter Money)'

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.

Japan Considers a Helicopter Drop

More recently, Japan, which faced stagnant growth throughout the 21st century, toyed with the idea of helicopter money in 2016. Once again, Bernanke was at the forefront of the conversation when he met with Japanese prime minister Shinzo Abe and Bank of Japan's Haruhiko Kuroda to discuss further monetary policy options, one of which was issuing large scale long-dated perpetual bonds. 

In the ensuing months, Japan did not formally implement a helicopter drop, but instead opted for further large scale asset purchases. 

 

 

RELATED TERMS
  1. Ben Bernanke

    Ben Bernanke was the chairman of the board of governors of the ...
  2. The Great Moderation

    The Great Moderation is the name given to the period of decreased ...
  3. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  4. Central Bank

    The entity responsible for overseeing the monetary system for ...
  5. Fool In The Shower

    Fool in the shower describes how policymakers are prone to overshoot ...
  6. Deflation

    Deflation is the general decline in prices for goods and services ...
Related Articles
  1. Insights

    Helicopter Money: Word on the Street

    Ben Willis discusses "helicopter money."
  2. Managing Wealth

    You Can Share a Helicopter: Here’s How

    It's called fractional ownership, and if you often fly in helicopters, it could be well worth the investment.
  3. Insights

    Bernanke Says the British Are Brexit's Biggest Losers

    The former Federal Reserve Chairman gives his views on the economic implications of the Brexit vote
  4. Insights

    Stagflation, 1970s Style

    Find out how Milton Friedman's monetarist theory helped bring the U.S. out of the economic doldrums.
  5. Insights

    Grading Janet Yellen

    Read a review of how Fed chairwoman Janet Yellen performed in her tenure as head of the Federal Reserve, and why it is more complicated than you think.
  6. Insights

    Global Markets Subdued, Eurozone Business Growth at 18-Month Low

    The PMI index for the Eurozone has dipped to 52.9 which implies slow economic growth.
  7. Investing

    What Will Happen To Treasury Yields With Yellen And Tapering?

    Janet Yellen was sworn in as Federal Reserve chair Feb. 3, 2014, ending Ben Bernanke's eight-year tenure. Yellen assumes her role at a time when the economy is its strongest since the recession ...
  8. Insights

    Translating "Fed Speak" Into Plain English

    Confused by the Fed's lingo? Find out what it can tell you and learn how to decipher it.
  9. Insights

    The Dangers Of Deflation

    We look at what life would be like in a deflationary environment, and what you can do to protect your investments.
  10. Insights

    Bank Stocks Set to Shine as Fed Tapering Begins

    As the Fed embarks on a monumental shift in policy, Goldman Sachs sees value in financials.
RELATED FAQS
  1. How does monetary policy influence inflation?

    Take a deeper look at how contemporary central banks attempt to target and control the level of inflation through monetary ... Read Answer >>
  2. Were there any periods of major deflation in U.S. history?

    Learn about major periods of price deflation in the United States, particularly in the 19th century when dropping prices ... Read Answer >>
Hot Definitions
  1. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  2. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  3. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  4. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  5. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  6. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
Trading Center