Digital Currencies and the Macroeconomy

Blaise, Kensley (2024) Digital Currencies and the Macroeconomy. Doctoral thesis, University of East Anglia.

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Abstract

The present research explores the interaction between macro-finance fundamentals and the private currency ecosystem, examining their economic effects through both theoretical modeling and empirical analysis. First, we investigate the relationship between crypto-currencies, proxied by Bitcoin and Ether, and key macroeconomic variables such as the United States term spread, Volatility Index (VIX), and breakeven inflation. Our findings reveal no significant link between crypto-currency returns and the term spread, suggesting investors do not consider economic cycles when trading crypto-currencies. However, extreme low VIX values correlate with high crypto volatility, with upper tail dependence reaching 3.7% to 7.6%. Second, we develop a one-period theoretical model where government-backed currencies and crypto-currencies serve as media of exchange for differentiated goods, showing that while fiat money is neutral, crypto-currencies are non-neutral due to mining costs and labor reallocation. In other words, cash being costless and crypto-currencies being costly lead to different equilibrium implications for policy decisions. In a dynamic model, cash-in-advance constraints lead to non-neutrality of money, with crypto-currencies introducing additional distortions through transaction fees and labor shifts. We recommend further research on how extreme events affect the relationship between crypto-currencies and macroeconomic variables, and propose exploring the coexistence of central bank digital currencies alongside fiat and crypto-currencies to better understand their long-term macroeconomic implications.

Item Type:	Thesis (Doctoral)
Faculty \ School:	Faculty of Social Sciences > School of Economics
Depositing User:	Chris White
Date Deposited:	12 May 2025 10:55
Last Modified:	12 May 2025 10:55
URI:	https://ueaeprints.uea.ac.uk/id/eprint/99238
DOI:

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