The Extensive Margin of Trade and Monetary Policy

Yuko Imura and Malik Shukayev ()

Staff Working Papers from Bank of Canada

Abstract: Many central banks are contemplating whether to issue a central bank digital currency (CDBC). CDBC has certain potential benefits, including the possibility that it can bear interest. However, using CBDC is costly for agents, perhaps because they lose their anonymity when using CBDC instead of cash. I study optimal monetary policy when only cash, only CBDC, or both cash and CBDC are available to agents. If the cost of using CBDC is not too high, more efficient allocations can be implemented by using CBDC than with cash, and the first best can be achieved. Having both cash and CBDC available may result in lower welfare than in cases where only cash or only CBDC is available. The welfare gains of introducing CBDC are estimated as up to 0.64% for Canada.

Keywords: Business fluctuations and cycles; Economic models; Firm dynamics; International topics; Monetary policy (search for similar items in EconPapers)
JEL-codes: E52 F12 F44 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2018
New Economics Papers: this item is included in nep-int, nep-isf, nep-mac, nep-mon and nep-pay
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https://www.bankofcanada.ca/wp-content/uploads/2018/07/swp2018-37.pdf

Related works:
Journal Article: The extensive margin of trade and monetary policy (2019)
Working Paper: The Extensive Margin of Trade and Monetary Policy (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:18-37

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