Perils of Debt Forgiveness and Helicopter Money

This paper analyses the proposal by the Italian governed that ECB should forgive the debt and argues against it. The proposal for debt forgiveness is the true proposal for the helicopter money as it was proposed by Milton Friedman (1969). Friedman wrote that the money should be “dropped by helicopter” the implication of such behavior is that the central bank gives money for nothing. The paper argues such behavior is dangerous and could cause long term instability. The paper also analyses the theoretical perspective of bank’s reluctance to increase credit in the low interest rate environment. Combining the two perspectives on monetary policy the paper argues the post-COVID-19 economic policy should be government debt decrease and gradual increase of interest rates to stimulate lending and investing.

Quantity of Money in Croatia - a Transactional Approach

TThis paper proposes a new calculation of monetary aggregate M4 and the quantity of money in Croatia. The existing methodology used by the central bank uses foreign currency as part of monetary aggregate M4 this methodology inflates the quantity of money. This paper takes the foreign currency out of the calculation of monetary aggregates and provides and different quantity of monetary approach to be used. The definition is based on the quantity of money used for transactions the so-called transactional approach. As an additional point of research, the paper investigates the velocity of money using a new aggregate with a special focus on the great recession and post-recession period..

Exchange Rate Regime and Household’s Choice of Debt

This paper looks at the impact of the exchange rate regime and the household’s choice of debt. One of the characteristics of economic transition in eastern European countries was an increase in overall debt holding. Standard economic theory assumes the relationship S=I. In this relationship the households should use debt only for purchases of durable goods; however in some eastern European countries there was a large increase in consumer loans which are not recognized under standard no-ponzi assumption of economic models. This paper aims to investigate precisely that case: increase in household’s debt which is used only for living above their means. The paper hypothesizes and proves a significant impact on the choice of the amount the debt the households are willing to hold is due to the choice of the exchange rate regime made by the central bank. The paper investigates two main cases: stable exchange rate regime (exchange rate regime with FX risk) and variable exchange rate regime (exchange rate regime without exchange rate risk). Behavior of the households is different under each exchange rate regime can be seen in the model and in the data as well.