The basic principle is that if a central bank wants to raise inflation and output in an economy that is running substantially below potential, one of the most effective tools would be simply to give everyone direct money transfers. In theory, people would see this as a permanent one-off expansion of the amount of money in circulation and would then start to spend more freely, increasing broader economic activity and pushing inflation back up to the central bank’s target.

From that paper, other academics including former Federal Reserve Chair Ben Bernanke and economist Willem Buiter have developed the theory further. Bernanke raised the possibility for monetary-financed tax cuts, whereby a government could cut taxes in a slump with the central bank committing to purchasing government debt in order to prevent interest rates from rising.

In a 2002 speech, Bernanke said:

A broad-based tax cut, for example, accommodated by a programme of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead rebalanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.”

So how is this different from conventional quantitative easing?

Current quantitative easing (QE) programmes undertaken by central banks since the financial crisis involve large-scale purchases of assets from financial markets. These have predominantly been targeted at government bonds, but individual central banks have also bought up a range of alternative assets, including commercial debt, mortgage-backed securities and even stock market exchange traded funds.

The major difference between QE as it has been carried out and helicopter drops as envisaged by Friedman is that the vast majority of purchases have been asset swaps, where a government bond is exchanged for bank reserves. While this alleviates reserve constraints in the banking sector (one possible reason for them to cut back lending) and has lowered government borrowing costs, its transmission to the real economy has been indirect and underwhelming.

As such, it does not provide much bang for your buck. Direct transfers into people’s accounts, or monetary-financed tax breaks or government spending, would offer one way to increase the effectiveness of the policy by directly influencing aggregate demand rather than hoping for a trickle-down effect from financial markets.