I am a strong advocate of helicopter drops as the primary and first-choice tool of macroeconomic stabilisation. There is increasing debate about helicopter drops but almost everyone assumes that helicopter money is just another way to generate higher inflation. Those who fear inflation see helicopter drops as irresponsible and those who seek more inflation see helicopter drops as irrelevant and equivalent to asset purchases by the central bank. Both these views are wrong – helicopter drops can be implemented without any change in inflation so long as interest rates are hiked to counteract the inflationary impact of helicopter money. Let me take a simple example to illustrate how – if the UK government were to send a sum of £500 to each British resident and financed this transfer via monetary financing from the Bank of England, the Bank of England in turn could simply hike the base rate till the inflationary impact of the helicopter drop was negated.
Even if helicopter drops did lead to higher inflation, the inflation target does not matter in a world of interest-bearing money. Holders of money and holders of bonds only care about real interest rates. If helicopter drops result in inflation going up from 3% to 5% and interest rates going from 0.50% to 2.50%, then money-holders are no better or worse off.