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A Bayesian DSGE Approach to Modelling Cryptocurrency"

Author

Listed:
  • Stylianos Asimakopoulos

    (Brunel University)

  • Marco Lorusso

    (Newcastle University)

  • Francesco Ravazzolo

    (Libera Universita di Bolzano)

Abstract

We develop and estimate a DSGE model to evaluate the economic repercussions of cryptocurrency. In our model, cryptocurrency offers an alternative currency option to government currency, with endogenous supply and demand. We uncover a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. We find that an increase in cryptocurrency productivity induces a rise in the relative price of government currency with respect to cryptocurrency. Since cryptocurrency and government currency are highly substitutable, the demand for the former increases whereas it drops for the latter. Our historical decomposition analysis shows that fluctuations in the cryptocurrency price are mainly driven by shocks in cryptocurrency demand, whereas changes in the real balances for government currency are mainly attributed to government currency and cryptocurrency demand shocks. (Copyright: Elsevier)

Suggested Citation

  • Stylianos Asimakopoulos & Marco Lorusso & Francesco Ravazzolo, 2023. "A Bayesian DSGE Approach to Modelling Cryptocurrency"," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 1012-1035, December.
    • Handle: RePEc:red:issued:21-87
    DOI: 10.1016/j.red.2023.09.006
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    More about this item

    Keywords

    DSGE Model; Government Currency; Cryptocurrency; Bayesian Estimation;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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