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Does bitcoin reveal new information about exchange rates and financial integration?

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Abstract

I show that the prices of the internationally traded crypto-currency bitcoin can be used to estimate a currency?s unofficial exchange rate and capital controls at a daily interval. Two important bitcoin features are documented: (1) Bitcoin-based exchange rates approximate the behavior, but not the level, of unofficial exchange rates, and (2) Bitcoin prices contain a bitcoin-trend term and must be appropriately normalized prior to being used for this purpose. Bitcoin-based exchange rates reveal that (3) there is no consistent pattern of Granger causality between unofficial rates and official rates by exchange rate regime or barriers at the daily frequency, and (4) that countries can engage in short-interval capital controls.

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  • Gina Pieters, 2016. "Does bitcoin reveal new information about exchange rates and financial integration?," Globalization Institute Working Papers 292, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddgw:292
    DOI: 10.24149/gwp292
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    Cited by:

    1. Julia Reynolds & Leopold Sögner & Martin Wagner, 2021. "Deviations from Triangular Arbitrage Parity in Foreign Exchange and Bitcoin Markets," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 13(2), pages 105-146, June.
    2. Gina Pieters, 2016. "The Potential Impact of Decentralized Virtual Currency on Monetary Policy," Annual Report, Globalization and Monetary Policy Institute, Federal Reserve Bank of Dallas, pages 20-25.

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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