First, under debt monetization the bond must promise at least one future repayment and have a positive market value; in contrast, the hypothetical "bond" that the central bank obtains under helicopter money provides for no future payments whatsoever and has a market value of zero.
Finally, debt monetization and helicopter money face different political and legal constraints.
That helicopter money is not "free" can also be seen by comparing the impact of debt monetization and helicopter money on die consolidated government balance sheet, which considers die Fed as part of the government.
Case 1 (debt monetization) is where the government runs a fiscal deficit that it finances by selling a perpetual coupon-paying bond, or Consols bond, to the central bank, which issues base money to purchase it.
Helicopter money and debt monetization policies are very similar: they both involve increases in base money, and they have the same impact on the consolidated government balance sheet.
Therefore, it would appear that the money-debt relationship is not explainable in terms of debt monetization
. Our TABULAR DATA OMITTED results confirm those of Joines |29~ who found that previous evidence in favor of the debt monetization
hypothesis resulted from seasonality.
For here a benevolent authority, concerned only with maximizing social welfare, is led inadvertently to engage in undesirable levels of debt monetization
. Were there no externalities, or were the authority capable of committing to a policy invariant to the extent of union indebtedness, file problem would not arise.