89:" to illustrate how central banks could always generate spending and inflation. Friedman used the example of a helicopter flying over a town dropping dollar bills from the sky, which households then gathered in perfectly equal shares. Economists have argued that real-world versions of this idea would work at the zero lower bound. Typically, helicopter drops have been interpreted as involving the central bank directly financing the budget deficit.
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has argued that helicopter drops can always raise demand and inflation. Following the repeated struggles of the
European Central Bank to revive the Eurozone economy and meet its inflation objective, a number of economists have taken a more literal interpretation of Friedman's parable and suggested
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The root cause of the ZLB is the issuance of paper currency by central banks, effectively guaranteeing a zero nominal interest rate and acting as an interest rate floor. Central banks cannot encourage spending by lowering interest rates, because people would simply hold cash instead.
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could eliminate the ZLB. Even without such measures, however, several central banks are able to reduce interest rates below zero; for example, the Czech
National Bank estimates that the lower limit on its interest rate is below â1%.
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Blinder, Alan S. (February 2012). "Revisiting
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suggested that a modern economy either fully relying on electronic money or defining electronic money as the
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even if the interest rate vanishes; it only needs to continue buying bonds. Friedman also coined the term "
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European Central Bank should transfer cash directly to households.
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Notes on Issues
Related to the Zero Lower Bound on Nominal Interest Rates
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and limiting the central bank's capacity to stimulate economic growth.
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Print Less, but
Transfer More, Foreign Affairs, Blyth, M., Lonergan, E
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List of banks acquired or bankrupted during the Great
Recession
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DoddâFrank Wall Street Reform and
Consumer Protection Act
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18 Misconceptions about
Eliminating the Zero Lower Bound
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Milton Friedman's Keynote address at the Bank of Canada
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National fiscal policy response to the Great Recession
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Why Is There a âZero Lower Boundâ on Interest Rates?
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Reichlin, L.; Turner, A.; Woodford, M (2013-05-20).
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193:voxeu.org
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382:Americas
246:13 April
101:See also
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