A Bayesian DSGE Approach to Modelling Cryptocurrency

Stylianos Asimakopoulos, Marco Lorusso () and Francesco Ravazzolo ()
Authors registered in the RePEc Author Service: Qazi Haque, Firmin Doko Tchatoka and Jamie Cross

No No 09/2023, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

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.

Pages: 98 pages
Date: 2023-09
New Economics Papers: this item is included in nep-ecm, nep-mon and nep-opm
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Citations: View citations in EconPapers (1)

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https://hdl.handle.net/11250/3091713

Related works:
Journal Article: A Bayesian DSGE Approach to Modelling Cryptocurrency" (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bny:wpaper:0121

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