"A Bayesian DSGE Approach for Modelling Cryptocurrency"
We develop and estimate a DSGE model to evaluate the economic repercussions of cryptocurrency. We assume that 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 also observe a countercyclical reaction of real balances of cryptocurrency to these shocks. Cryptocurrency productivity shocks have negative effects on output, inflation and cryptocurrency exchange rate. Finally, output and inflation responses are stronger when cryptocurrency is introduced in the utility function in a non-separable way.