Yellen: Helicopter Money in an "Extreme" Situation Something to "Legitimately Consider"


Federal Reserve chairwoman Janet Yellen on the possibility of using 'helicopter money' to help the economy. She said it could be used "only in an usual situation." From Wednesday's press conference with financial reporters:

GREG ROBB, MARKET WATCH: There's been a lot of discussion in the last couple of months about the slow pace of demand in the global economy. And some economists think central banks should think about using helicopter money. Maybe in Japan first or Europe first. But then former Federal Reserve chairman Ben Bernanke weighed in saying that he thought it would be a good thing for the Fed to put helicopter money in its tool kit in case there was a downturn in the United States. So I'd like your comments on that.

JANET YELLEN, FEDERAL RESERVE CHAIRWOMEN: In normal times I think it is very important that there be a separation between monetary and fiscal policy. And it is a primary reason for independence of the central bank. We've seen all too many examples of countries that end one high or even hyperinflation because of those in charge of fiscal policy direct their central bank to help them finance it by printing money and maintaining price stability and low and stable inflation is very much aided by having central bank independence.

Now that said, in unusual times where the concern is with very weak growth or possibly deflation, rather rare circumstances -- first of all, fiscal policy can be a very important tool. And it is natural that it can be employed that just as monetary policy is doing a lot to try to stimulate growth that fiscal policy should play a role. And normally you would hope in an economy with those severe downside risks, monetary and fiscal policy would not be working at cross-purposes to get together.

Now whether or not whether in such extreme circumstances there might be a case for close coordination where the central bank playing a role in financing fiscal policy. This is something that academics are debating. And it is something that one might legitimately consider. I would see this as a very abnormal, extreme situation where goes in an all-out attempt -- and even then it's a matter that academics are debating -- only in an unusual situation.

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