A New Economic Framework: A DSGE Model with Cryptocurrency

In the new CAMP working paper 07/2019, Asimakopoulos, Lorusso and Ravazzolo evaluate the economic repercussions of cryptocurrency. They develop a Dynamic Stochastic General Equilibrium (DSGE) model, and assume that cryptocurrency serves as an alternative currency option to government currency for households, and that there are endogenous supply and demand for cryptocurrency. Their results indicate that there is a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. Moreover, they find that government currency demand shocks have larger effects on the economy than shocks to cryptocurrency has. Overall, the paper provides new insights and evidence on the underlying mechanisms of cryptocurrency and the spillover effects it has on the economy, which can aid investors, policy makers, central bankers and researchers in the future.

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