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There is a lot of stuff in this great post that I will need to go over very carefully to fully grasp. But one thing struck me immediately.

You say "If taxes are lump sum, this [distortionary effect] does not matter". Couldn't the people implementing the helicopter drops/vacuum cleaner operations design them to be as much like lump sum taxes as possible? If you build this into the model then doesn't this strengthen the case for them versus OMO ?

Similarly are there not "Cantillon" effects of OMO that are also distortionary at the margin ?

Very well explained. It's amazing how many of my commenters think helicopter drops are better than OMOs. My views is that once the central bank owns the entire stock of global assets, come back to me and we can talk about fiscal stimulus.

MF: thanks!

It is quite easy to design a lump sum transfer payment (helicopters). The central bank mails everyone a cheque for $100. But a lump sum tax of $100 (vacuum cleaners) would be much harder. How do you force people who have no income or assets (or who hide their income and assets) to pay? In practice we would end up taxing people a percentage of their reported income. And if people anticipate this, that gives them a smaller incentive to earn income. That's the "distortion". You don't get that same distortion with the central bank selling land.

Scott: thanks! It was clear to you, what I was trying to say. I'm not sure if it will be clear to others.

What if a sales tax/subsidy was used rather than a lump sum tax ? This would distorts savings/consumption a bit at the margin - but in the right direction as far as AD stimulation goes.

Also if landowners are selling land high and buying it back low isn't that distortionary and in their favor relative to non-landowners ?

MF: "What if a sales tax/subsidy was used rather than a lump sum tax ? This would distorts savings/consumption a bit at the margin - but in the right direction as far as AD stimulation goes."

Good point. By subsidising consumption today, relative to future consumption, you could make the real after-tax interest rate as negative as you want, and avoid the ZLB that way. (You could also avoid the ZLB by temporarily raising the target NGDP growth rate, to raise the implied inflation target.)

"Also if landowners are selling land high and buying it back low isn't that distortionary and in their favor relative to non-landowners ?"

Bad point. No. "Distortion" means reducing allocative efficiency of the price system by creating a wedge between the price buyers of apples pay and the price that sellers of apples get, so that the Marginal Benefit of Apples exceeds the Marginal Cost of apples, so that too few apples get produced and consumed. You are talking about a transfer of wealth towards landowners. But for every temporary increase in the desire to save, there must also be a temporary decrease in the desire to save. For every temporary helicopter there must be a temporary vacuum cleaner.

Plus, it is not (yet) obvious to me that the variance of land prices under land market operations would be greater than under helicopter-then-vacuum-cleaner operations.

Aren't you just admitting land would be less effective than helicopter money and more of it would have to be done to accomplish the same?

"Tax-smoothing considerations means that buying land beats helicopter money as a way to increase aggregate demand."

I realize that this is only a blog post, but this argument is very thin. (I don't mean that this sentence is all there is to it. It's a summary.) To think that tax-smoothing considerations are the only relevant differences between "helicopter money" and buying land to increase aggregate demand boggles the mind.

Lord: "Aren't you just admitting land would be less effective than helicopter money and more of it would have to be done to accomplish the same?"

It will generally be true that helicopter money would have a bigger effect on aggregate demand ***per extra dollar created*** than purchasing assets. So what? If there were a significant cost to the paper and ink, that would matter. But there isn't (just print bigger denominations). I have never understood the "bang per buck" metric. If you only get half as many bangs per buck, just print double the number of bucks. No problem.

Min: After I posted it I thought: "maybe I should have added 'inter-generational equity considerations' as well?". Is that what you had in mind? If so, OK.

If not, why do *you* think it matters if the government halves tax rates this year, and doubles them next year (or increases them enough to hold the present value of tax revenue constant), if the central bank were to take offsetting action to hold aggregate demand constant?

Nick:
"Buying land results in a smaller loss to the central bank than helicopter money, and means the subsequent vacuum cleaner operation can be smaller. Buying land means a smaller subsequent increase in future taxes than helicopter money."

There's more Ricardian equivalence here than meets the eye. If they sell $100 of land for $100 currency, and then burn the currency, then both sides of the money-issuer's balance sheet drop by $100. But if they vacuum $100 of currency with tax collections, and burn the currency received, then both sides of the balance sheet fall by the same $100 as with the land sale.

Mike: Under Ricardian Equivalence, since bond or land-financed transfer payments would have no effect, then helicopter money would be equivalent to issuing money to buy land.

(I think we are saying the same thing?)

Nick say 'Buying land results in a smaller loss to the central bank than helicopter money"

I have q question (I may be missing something).

You say: "It [the CB] sells the land at a loss, but it at least gets something for the land it sells, plus the rents. Its loss will be less than 100%"

and also in the comments "It will generally be true that helicopter money would have a bigger effect on aggregate demand ***per extra dollar created*** than purchasing assets".


Putting these 2 together how do know that "Buying land results in a smaller loss to the central bank than helicopter money"? If land purchases require twice as many dollars to hit the target, and result in 60% loss (including rent) then helicopter drops will cause a smaller "loss" won't they.

(re-submitting last comment as I hit "post" by accident too early)

I have a question (I may be missing something).

You say: "It [the CB] sells the land at a loss, but it at least gets something for the land it sells, plus the rents. Its loss will be less than 100%"

and also in the comments "It will generally be true that helicopter money would have a bigger effect on aggregate demand ***per extra dollar created*** than purchasing assets".

Putting these 2 together how do know that "Buying land results in a smaller loss to the central bank than helicopter money"? If land purchases require twice as many dollars to hit the target, and result in 60% loss (including rent) then helicopter drops will cause a smaller "loss" won't they?

MF: helicopter money of $100 is like buying $100 worth of land, then giving away the $100 worth of land. The additional effect on aggregate demand of helicopter money over land market operations comes precisely from that additional loss. If, counterfactually, land market operations caused a bigger loss to the central bank than helicopter money, then land market operations would be more expansionary than helicopter money.

Not sure if that was clear. It's late, and my brain is tired.

yes, that makes sense.

Stated differently: Other things equal when the time comes to reverse out a stimulus the maximum "cost" is the cost of a pure "hoover operation". Any positive value attached to the land and recouped by a resale will be a reduction from this maximum. Therefore the "costs" of land purchase will always be lower.


Different question: Is your post implying that whenever a real world CB reverses out a stimulus that it likely will take a hit on the assets it purchased, and have to increase taxes (or sell more assets than it originally bought) ?

MF: Hmmm. I don't think so. I think it depends on the particular type of shock that caused the CB to act. It may make capital gains or losses. But remember, it also gets the rent/interest on the assets it buys, and that will offset any capital losses.

"When the central bank does helicopter money, it gets nothing in exchange for the money it issues"

the way I understand it, helicopter money is fiscal policy. It's government spending.

So instead of just giving that money away (as a sort of 'transfer' - cash in the mail to every citizen), why not use it to employ people and pay for government projects, such as infrastructure investment? In that case the government/society gets new assets and jobs in return for the helicopter money.

if selling a government bond is a vacuum cleaner operation, why not use it as a vacuum cleaner in the case of helicopter money?

Why does the vacuum cleaner in the case of helicopter money have to be taxes? Why can't the vacuum cleaner for helicopter money be sales of new government bonds?

Philippe: "the way I understand it, helicopter money is fiscal policy. It's government spending."

It is normally thought of as fiscal+monetary policy. But it is not government spending. It is a transfer payment (a negative tax), financed by printing money.

The central bank could buy government bonds, commercial bonds, shares, shares in companies that own bridges, old bridges, new bridges, or land. These are all asset purchases.

"Why does the vacuum cleaner in the case of helicopter money have to be taxes?"

By definition. That's what "vacuum cleaner" means.

"Why can't the vacuum cleaner for helicopter money be sales of new government bonds?"

We call that "open market operations".

It seems to me like the government has been buying land for many years. The method is to use the GSE's like Freddie Mac and Fanny Mae.

OK, the GSE's do not BUY the property, but when they take a very large position in the debt and the so-called "owner" takes a very small position, who REALLY is the owner of the property? If the borrower defaults, we see the GSE assuming ownership in a stark manner.

It seems to me that an outright purchase of land by the Central Bank WOULD send a message to the land purchasing portion of the economy. A chill would go through young prospective buyers who would come to realize that not only are older, more financially sound buyers competing in this land market, but now the competition for land includes the full resources of the Central Bank.

I think the GSE's already seriously distort the price of land. It seems to me that your suggestion would distort land prices even farther.

Roger: you are thinking partial equilibrium. You think the central bank would be influencing the value of land. Think general equilibrium. Think of it influencing the price of money.

(And you need to think about what you mean by "distort".)

It would be concerning if the CB bought all the assets or a large portion of all assets out there IMO. Seems communistic and a potential conflict of interest or concentration of power.

"When the central bank does helicopter money, it gets nothing in exchange for the money it issues. It makes a 100% loss. And this matters when the central bank needs to reverse the operations, and sell land, or do a vacuum cleaner, to prevent NGDP rising above target."

Why does the central bank need anything in exchange? It already owns a printing press valued at infinity. It could also recognize the money it issues as equity instead of liab and then its balance sheet doesnt deteriorate. Money is a financial asset and if issued to the CB's constituent (the people) then equity is the proper recognition. Its like a company issuing stock to its shareholders.

Heli drops seem more permanent because asset purchases draw money back out of system as they expire like a treasury. Plus heli's allow the fed to interact with anyone as opposed to just asset holders, not every9ne has assets to sell. The fed could expand money to people with little to no wealth which have a higher opportunity cost of holding money due to foregone consumption.

Heli drops can be reversed through issuance of securities by fed (it could issue its own "treasuries") or ON RRP etc...

Nick,

H drops and land purchases have the same liquidity effect (on the private sector) by increasing the quantity of central bank money in the same way.

But they have different wealth effects.

H drops are pretty straightforward in that they increase private sector wealth by the amount of money printed.

The effect of land purchases is not straightforward. It is the increase in the aggregate return on all land (due to CB intervention) less the amount of aggregate return that is extracted from the private sector due to the movement of some of the land onto the central bank balance sheet. The first is an increase in private sector income and wealth; the second is a tax.

?

Nick Rowe,

Very interesting post.

"I have never understood the "bang per buck" metric. If you only get half as many bangs per buck, just print double the number of bucks. No problem."

It may be a hangover from thinking about balanced-budget multipliers. There, you do want to maximize the effect of each unit of debt acquired.

CMA,

"Why does the central bank need anything in exchange? It already owns a printing press valued at infinity."

I find it remarkable that people who say this often make literally no effort to engage with the arguments involved, even when the arguments against helicopter drops are made in the same thread that they say it!

CMA: "It would be concerning if the CB bought all the assets or a large portion of all assets out there IMO. Seems communistic and a potential conflict of interest or concentration of power."

Yep. I said the same thing in an old post. If we don't want communism, we don't want the central bank to get too big, so we don't want too low an inflation target (or NGDP growth target).

"Why does the central bank need anything in exchange?"

Read the post! Because this is a *temporary* need to issue money, and that money will need to be withdrawn later.

And if a firm issues new shares, and gives them away for free, its balance sheet *does* deteriorate. Selling bonds to retire those extra shares in future is the same as selling assets to retire those extra shares in future.

JKH: "H drops and land purchases have the same liquidity effect (on the private sector) by increasing the quantity of central bank money in the same way.
But they have different wealth effects."

Yep. Nice clear way of putting it.

"H drops are pretty straightforward in that they increase private sector wealth by the amount of money printed."

No. Or rather, I think this is a clearer way of thinking about it: If you helicopter drop $100 in money, wealth rises by $100 (the direct effect), **plus it rises due to the indirect effect on asset prices of the liquidity effect**. Asset purchases of $100 have the same indirect liquidity effects on asset prices and wealth, but they don't have that same direct $100 wealth effect.

That probably wasn't clear. It's because we are trying to solve a general equilibrium model in our heads. Here is a slightly easier thought-experiment:

Compare a doubling of M by helicopters to a doubling of M by asset purchases.

Suppose, just suppose, that *all* prices double in response (including land). (They won't, except in the case of a permanent helicopter, plus other assumptions like no government bonds, and no sticky prices, etc.)

With the helicopter, since M/P is unchanged, there would be zero liquidity effect and zero (real) wealth effect.

With asset purchases, there would be zero liquidity effect, but a negative wealth effect, since the private sector owns less land. The difference between the two is exactly like confiscating land.

W Peden: thanks!

On the "bang per buck" metric: Maybe. But IIRC, from when we talked about bang per buck of fiscal policy many decades ago, we used to say that changes in G had a bigger bang per buck than changes in T, and I think we maybe had an idea at the back of our minds that there were micro-optimal levels of G and T, and we wanted to get to full employment with the smallest possible departure from those micro-optimal levels. Dunno. But thinking about bang per buck of fiscal policy does seem to make a little bit more sense than talking about bang per buck for monetary policy. So I think I agree with you there.

W. Peden

"I find it remarkable that people who say this often make literally no effort to engage with the arguments involved, even when the arguments against helicopter drops are made in the same thread that they say it!"

I did engage. In my comment (last sentence) I mentioned that MB can be reversed through issuance of securities. You didnt read my argument.

Nick Rowe

"Read the post! Because this is a *temporary* need to issue money, and that money will need to be withdrawn later.

And if a firm issues new shares, and gives them away for free, its balance sheet *does* deteriorate. Selling bonds to retire those extra shares in future is the same as selling assets to retire those extra shares in future."

The fed can issue securities to withdraw money. When it sells bonds to retire money the money it receives is an asset and the difference it could make up through seignorage or printing and holding on its balance sheet. It can hold the money it creates on its balance sheet as an asset.

With heli's its unlikely to need to reverse becuase they will have a strong impact on spending.

"Asset purchases of $100 have the same indirect liquidity effects on asset prices and wealth, but they don't have that same direct $100 wealth effect."

Heli's also have an effect on prices and wealth like asset purchases as well as the direct 100 wealth effect. Asset purchases only have the indirect effect.

CMA,

The Fed could issue its own securities, if it could. But it can't, so it cannot.

@ Nick Rowe

I see that others are bringing up unspoken aspects of your argument better than I could, so I'll look and learn. :)

But there is something that I am wondering about. It seems to me that the idea of the CB buying land to sell it back later is similar to the idea of the CB making loans secured by land. We have the example of the Pennsylvania colony in the 18th century. Britain was starving its American colonies of cash so that it would have to trade with it to get money, leaving them in a state of depression or secular stagnation. Pennsylvania was one of the colonies that stimulated its economy by issuing its own currency. It did so by making loans on land. Isn't that like buying the land and selling it back over time?

Min: it's similar. More like buying mortgages to land, rather than land itself.

I think something is missing. That is, there is no inherent need to 'vacuum' up helicopter money. It vacuums itself up into bank holdings. If the Fed needs to tighten to prevent inflation, it can just increase the capital holding requirements of the banks.

Thanks, Nick. :)

Can we say that the interest on the loans is analagous to rents on the land?

One difference seems to be that the loans are expected to be repaid in full, instead of the CB selling the land back at a loss. IIUC, the loss is collected in future taxes, right?

Another, more important difference, perhaps, is that the loan is to be repaid at a definite date, while there is no set date for future selling of land or levying taxes. I am not sure how significant that difference is.

DD: "If the Fed needs to tighten to prevent inflation, it can just increase the capital holding requirements of the banks."

You mean reserve requirements, not capital requirements. OK, it could do monetary policy by lowering and raising required reserve ratios. But that means the commercial banks are doing open market operations (buying and then selling assets), instead of the central bank doing open market operations, so it amounts to much the same thing.

(And on this blog the hypothetical central bank is called "The Bank of Canada", not the Fed! And we don't have required reserves up here!)

Min: "Can we say that the interest on the loans is analagous to rents on the land?"

Yes. But central banks can also make losses from buying and selling bonds, even with no default. Bond prices fluctuate, just like land prices. Land is like a perpetuity, which pays a real annual coupon.

Nick Rowe: "central banks can also make losses from buying and selling bonds, even with no default."

Sure. IIUC, your argument assumes that net losses of the CB have to be made up by taxes, is that right?

Nick Rowe: "More like buying mortgages to land, rather than land itself."

Or issuing mortgages.

Now suppose that someone takes out a loan from the CB (or any bank) and then says, "You know, I am going to have to pay this money back eventually, so I had better stash it away so I can meet those payments." That would be pretty silly, right?

"If expected nominal rents are a strictly positive ratio of NGDP, the infinite horizon nominal rate of return on holding land will exceed the NGDP growth rate."

I don't see how you can pin down the return on land, unless maybe if you make the assumption that a steady state is feasible, which, I think, is essentially assuming the conclusion there can be no long run secular stagnation. If the equilibrium real interest rate is, say, zero, and land rents are strictly positive, then, since land is in fixed supply, there is no price of land that is high enough to be an equilibrium. Go to some arbitrary point in the future and say, land has some positive value at that point, so what should the price be today? In the mean time you can earn rent, and the equilibrium return is zero, so the price today needs to be higher so that you get a capital loss to offset the rent. The further you push your arbitrary point into the future, the higher the price of land has to be today, and it increases exponentially as you push the point further into the future. Name a candidate current equilibrium price of land, and I will name a point far enough into the future to make that price not an equilibrium.

I'm a big fan of you and Scott Sumner. But I never understood why both of you can't see that helicopter drops and market monetarism go together like peanut butter and jelly! (A German writing to a Canadian using American idioms, very sad....;-)

You are not a backing theorist. You understand that money and banking have nothing in common. It's not about credit, interest rates or balance sheets. It's one of your points ( at least I learned it from you) that socially constructing monetary policy as banking is a disaster. So why can't you see the beauty of helicopter drops?

Here is my favorite policy. Give each citizen a central bank account. Cut all connection between the central bank and commercial banks. Don't do OMOs. No buying of government bonds anymore. Target NGDP, choose a high enough target. If you need to raise the money supply, do a straight helicopter drop into each account. If you have to contract, do a lump sum tax. My (and Milton Friedman's) favorite tax is a 100% site value tax paid out as a citizens dividend (a negative tax). Contract the money supply by reducing the citizens dividend. There will be no distortions.

Politically this would be a winner. Every idiot (by idiots I mean mostly Germans) could see now that monetary policy is not about bailing out the banking system or monetizing state debt. Nobody could talk about Cantillon effects or central bankers helping asset rich people. Everybody would understand monetary policy is just about keeping NGDP on track by either giving or taking money straight from the people. No banks, no states, just me and my central bank (which shouldn't be called a "bank" anymore).

My main point is: wouldn't such a setup be aesthetically beautiful in a "form follows function"-way? Everything would be easy and transparent. Making monetary policy much more acceptable.

Min: what you are talking about is Ricardian Equivalence. If Ricardian Equivalence is true, then fiscal policy (in the form of tax cuts, holding money constant) won't work either.

Andy: isn't that just the standard problem of multiplicity of rational expectations equilibrium time-paths for asset prices? Where we always eliminate those weird non-stationary equilibria?

libertaer: Monetary policy needs to be reversible. The demand for money can increase, but it can also decrease. Having the central bank give people money is fun and easy. Doing the reverse is no fun and is hard. Lump sum taxes, especially implemented with no advanced warning, especially big ones, would cause big problems. Selling the central bank's assets is very easy.

"Having the central bank give people money is fun and easy. Doing the reverse is no fun and is hard. Lump sum taxes, especially implemented with no advanced warning, especially big ones, would cause big problems. Selling the central bank's assets is very easy."

Why cant the fed just issue securities like the treasury to remove money? The money it receives it holds as an asset, any difference can be made up through seigniorage and printing. Heli's wont allow the MB to bloat anyway because people will spend money they receive.

CMA: so when it wants to increase the money supply it gives away money. and when it wants to reduce the money supply again it borrows money? Because it will go bust.

Stop.

Nick Rowe: "what you are talking about is Ricardian Equivalence."

That's what I thought. In the form I put it, it is silly, isn't it?

How is it going bust if it is borrowing money which it can readily print in order to temporarily contract the MB? Holding a treasury issued by a separate arm of gov isnt any type of backing either if you think about it. A treasury is a claim on MB. The fed can hold MB on balance sheet if needed.

Min: Ricardian Equivalence is silly if you take it too literally. But there is *some* truth in it.

CMA: because it is targeting NGDP. And there is a limit to how much money you can print, and how much seigniorage you can earn, especially if you want to keep NGDP growing at some not too explosive rate.

For example, suppose the demand for money doubled every spring, and halved every Fall. You would have a doubling of the money supply every year, so NGDP would be doubling every year.

Now STOP^2.

I think my previous comment didnt upload.

"For example, suppose the demand for money doubled every spring, and halved every Fall. You would have a doubling of the money supply every year, so NGDP would be doubling every year."

When demand doubles increase M through heli's. When demand seasonally halves draw money out of system through temporary security issuance. When it doubles again let securities expire or buy them back.

@CMA
"When demand seasonally halves draw money out of system through temporary security issuance. When it doubles again let securities expire or buy them back."

That's a common mistake. You have to pay interest on your securities. Now, how do you pay interest? If you just issue more securities, you're entering the world of Ponzi schemes. If you print the money, you are raising the money supply again with each interest payment, putting out the fire with gasoline. The government can issues bonds only because at least the interest it pays on them is financed through taxes.

If you do helidrops, you need a tax. There is no way around it. (By the way, I don't like to call it taxes, cause the money you take, gets destroyed.) The easiest way here in Europe would be using the VAT. But that's not a lump sum tax, so it's distortionary. People who consume more would have to pay more. I could live with that since it would be politically much more acceptable than what we have now. Even doing OMOs by buying government bonds is highly controversial in places like Germany, buying private assets would be a no go. That's why monetary policy without any assets involved is the way to go.

"That's a common mistake. You have to pay interest on your securities. Now, how do you pay interest? If you just issue more securities, you're entering the world of Ponzi schemes. If you print the money, you are raising the money supply again with each interest payment, putting out the fire with gasoline. The government can issues bonds only because at least the interest it pays on them is financed through taxes."

Historically the MB has grown at 5-10% per anum and very stable without any significant deviations. Can you reach a point where ngdp growth is above target and the rate of money expansion through interest payments is too high? In a simple example that would take about a 15% interest rate, with half the MB drawn out by fed through security issuance. Overall 7.5% MB growth rate. Im assuming for simplicity that ngdp target will be hit using historical average MB growth.

Say if targeting 6% ngdp growth, how could it sustain at a 15% interest rate? Ngdp growth should collapse requiring the fed to increase MB at greater than 7.5 % rate by buying back securities. The ponzi cant happen that I can see. I hope my explanation makes sense.

Can you think of any circumstance where this could occur? (supply side shock?)

Otherwise you stop issuing securities and just let them expire, you dont grow the MB anything beyond the outstanding securities. Ngdp can overshoot in short term in some extreme circumstance but ultimately it cant if the fed stops expanding the money base altogether.

You need massive variations in money demand. To need massive contractions or expansions.In an incredibly extreme circumstance you may need tax though I suppose in short run. The fed could impose transaction costs, banking fees or increase seignorage on users of financial system.

The key is that heli drops wont allow for deviations in MB demand in first place unlike asset purchase because people with low incomes spend.

Oh God.

CMA: Your comment did not fail to upload. I unpublished it, because you twice ignored my request to stop.

Assume average currency/NGDP=5%. Assume target NGDP growth=5% per year. That means the central bank helicopters 5%x5% = 0.25% of NGDP per year. (It gives that as seigniorage revenue to the government every year, on average.) It's peanuts. Varying the size of the helicopter drop won't be enough. You would need negative helicopters (vacuum cleaners). Or, the central bank must buy and sell assets. Like government bonds or land. And if the central bank itself issues bonds, it would be buying and selling those bonds, which is exactly the same thing as buying and selling government bonds, or land.

Now please stop this line of comments. It is trying my patience.

CMA: a comment that ignores my request to stop following a daft red herring that wastes my time and disrupts the conversation and lowers the quality of the comment thread is one that tries my patience. And comments that make false accusations against me also try my patience.

DO NOT REPLY.

Nick,

Roughly agree.

I think it’s useful to differentiate helicopter and land operations across the following dimensions:

a) Liquidity and wealth effects (for the private sector)
b) First order effects versus second order and subsequent effects
c) What happens in the limit of H drops or L purchases

H operations have a straightforward first order effect in terms of both liquidity and wealth. That’s really what I was referring to.

Land operations may appear to produce a similar liquidity effect as H operations in the first order. But L operations leave the private sector less liquid in aggregate – by comparison – because while the private sector has new cash it no longer has the land. And having land (as in the case of H drops) is more liquid than not having land, other things equal.

H operations produce new private sector wealth in the first order in a straightforward fashion (except for Ricardian equivalence). L operations produce new wealth in the first order only to the extent that the CB bids up the price of land, resulting in capital gains compared to the counterfactual.

It seems to me that in subsequent order effects, H operations are more effective than L operations for a given quantity, because the private sector in aggregate is wealthier and more liquid, as above.

The corollary seems to be that L operations must be done in greater quantity. The limiting case of monetary L operations is interesting – where the CB just keeps buying land. The wealth effect arguably becomes more pronounced due to capital gains. But it’s still a lot less than with an equivalent quantity nominal H drop. The liquidity effect increases too but that also is less than the aggregate portfolio effect of the same quantity H drop, as above.

Maybe the critical L effect is the need for the private sector to rebalance portfolios somehow – because it gets stuffed with money relative to other assets - particularly relative to assets it has sold to the CB. If the CB buys all the land/old stuff, then the only stuff left to be bought is new stuff – GDP goods and services. I guess.

Maybe the primary H drop effect is the private sector net wealth effect. And maybe the primary L channel is an overconcentration of money in portfolios – but without the same order of net wealth change as with H drops.

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