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Inflation and Bitcoin: A descriptive time-series analysis

Author

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  • Blau, Benjamin M.
  • Griffith, Todd G.
  • Whitby, Ryan J.

Abstract

This study examines the time-series relation between Bitcoin and forward inflation expectation rates. Using a vector autoregressive process, we find that changes in Bitcoin Granger cause changes in the forward inflation rate. Furthermore, imposing an exogenous shock to Bitcoin’s price results in a persistent increase in the forward inflation rate. Our findings provide support for the notion that Bitcoin may be used as a hedge against inflation as changes in the price of Bitcoin tend to lead changes in the expected inflation.

Suggested Citation

  • Blau, Benjamin M. & Griffith, Todd G. & Whitby, Ryan J., 2021. "Inflation and Bitcoin: A descriptive time-series analysis," Economics Letters, Elsevier, vol. 203(C).
    • Handle: RePEc:eee:ecolet:v:203:y:2021:i:c:s0165176521001257
    DOI: 10.1016/j.econlet.2021.109848
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    8. Sonan Memon, 2022. "Cryptocurrencies: Review of Economics and Policy," PIDE-Working Papers 2022:7, Pakistan Institute of Development Economics.
    9. Conlon, Thomas & Corbet, Shaen & McGee, Richard J., 2021. "Inflation and cryptocurrencies revisited: A time-scale analysis," Economics Letters, Elsevier, vol. 206(C).
    10. Rodriguez, Harold & Colombo, Jefferson, 2024. "Is bitcoin an inflation hedge?," MPRA Paper 120477, University Library of Munich, Germany.
    11. Raphael Auer & Marc Farag & Ulf Lewrick & Lovrenc Orazem & Markus Zoss, 2022. "Banking in the shadow of Bitcoin? The institutional adoption of cryptocurrencies," BIS Working Papers 1013, Bank for International Settlements.
    12. David Cerezo S'anchez, 2022. "Zero-Knowledge Optimal Monetary Policy under Stochastic Dominance," Papers 2210.06139, arXiv.org.
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    14. Kolawole Ibrahim Gbolahan, 2023. "An Empirical Investigation of Bitcoin Hedging Capabilities against Inflation using VECM: The Case of United States, Eurozone, Philippines, Ukraine, Canada, India, and Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 13(6), pages 91-100, November.
    15. Bakas, Dimitrios & Magkonis, Georgios & Oh, Eun Young, 2022. "What drives volatility in Bitcoin market?," Finance Research Letters, Elsevier, vol. 50(C).
    16. Sinda Hadhri, 2023. "How does Bitcoin react to economic discomfort? Evidence from the economic misery index," Economics Bulletin, AccessEcon, vol. 43(3), pages 1235-1253.
    17. Li, Xiao & Wu, Ruoxi & Wang, Chen, 2024. "Impacts of bitcoin on monetary system: Is China's bitcoin ban necessary?," Research in International Business and Finance, Elsevier, vol. 69(C).
    18. Li, Shi, 2022. "Spillovers between Bitcoin and Meme stocks," Finance Research Letters, Elsevier, vol. 50(C).
    19. Liu, Jinan & Valcarcel, Victor J., 2024. "Hedging inflation expectations in the cryptocurrency futures market," Journal of Financial Stability, Elsevier, vol. 70(C).
    20. Cynthia Weiyi Cai & Rui Xue & Bi Zhou, 2023. "Cryptocurrency puzzles: a comprehensive review and re-introduction," Journal of Accounting Literature, Emerald Group Publishing Limited, vol. 46(1), pages 26-50, June.
    21. Fatma Abdelkaoui & Ali Sidaoui & Feriel Nasser & Meriem Bouzidi, 2024. "Cryptocurrency and Macroeconomic Dynamics: Case of 10 Asian Economies," South Asian Journal of Macroeconomics and Public Finance, , vol. 13(1), pages 100-126, June.
    22. Cascavilla, Alessandro, 2023. "Between money and speculative asset: the role of financial literacy on the perception towards Bitcoin in Italy," MPRA Paper 118472, University Library of Munich, Germany.
    23. Cascavilla, Alessandro, 2024. "Between money and speculative asset: The role of financial literacy on the perception towards Bitcoin in Italy," Journal of Economic Psychology, Elsevier, vol. 102(C).
    24. Feyen,Erik H.B. & Kawashima,Yusaku & Mittal,Raunak, 2022. "Crypto-Assets Activity around the World : Evolution and Macro-Financial Drivers," Policy Research Working Paper Series 9962, The World Bank.

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    More about this item

    Keywords

    Bitcoin; Cryptocurrency; Digital currency; Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E49 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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