The Scottish independence referendum in September 2014 was billed as a “once in a generation” event. Two and half years later, and we are now faced with a possible second vote. The politics of the case for independence may have been shaken up by the UK’s decision to leave the European Union, but the economics have also been shaken up by the collapse in oil prices.
Over the past few weeks we have frequently debated the likelihood of 'helicopter money'. However, I have noticed that people tend to use the term to mean many different things. What some people call a helicopter, other people would hardly call a drone. In light of this I think it might be helpful to answer the question: what does helicopter money really mean?
Until the European Central Bank (ECB) changes the rules associated with sovereign bond purchases, the duration of its holdings will steadily increase. This introduces a self-reinforcing dynamic. When yields drop, the ECB is forced to buy more, putting further downward pressure on yields.
The European Central Bank (ECB) is facing a conundrum of its own making. Boxed in by a series of constraints on its asset purchase programme, the Governing Council needs to change the rules to continue its bond buying spree. There are not many good options available at this stage.