Parallel Digital Currencies and Sticky Prices

Harald Uhlig () and Taojun Xie ()
Additional contact information
Taojun Xie: National University of Singapore - Lee Kuan Yew School of Public Policy, Asia Competitiveness Institute

No 2020-188, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: The recent rise of digital currencies opens the door to their use in parallel alongside official currencies (“dollar†) for pricing and transactions. We construct a simple New Keynesian framework with parallel currencies as pricing units and sticky prices. Relative prices become a state variable. Exchange rate shocks can arise even without other sources of uncertainty. A one-time exchange rate appreciation for a parallel currency leads to persistent redistribution towards the dollar sector and dollar inflation. The share of the non-dollar sector increases when prices in the dollar sector become less sticky and when firms can choose the pricing currency.

Keywords: Private money; cryptocurrency; digital currency; currency choice; monetary policy (search for similar items in EconPapers)
JEL-codes: E30 E52 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2020
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-pay and nep-sea
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Citations: View citations in EconPapers (5)

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https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020188.pdf (application/pdf)

Related works:
Working Paper: Parallel Digital Currencies and Sticky Prices (2020)
Working Paper: Parallel Digital Currencies and Sticky Prices (2020)
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