Short-Run Dynamics in a Search-Theoretic Model of Monetary Exchange

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It is a common belief that monetary policy has persistent short-run effects on the economy. However, the channels through which it operates are still not fully understood.

We study the effects of "helicopter money"—distributing money in a uniform fashion—in an economy where agents have heterogeneous money holdings and are subject to random liquidity needs.

We show that an expansionary monetary policy has persistently positive effects on economic output and social welfare. The policy reallocates purchasing power from the rich to the poor through a “redistributive channel.”  Furthermore, we find that the effects of positive and negative monetary interventions are typically asymmetric.