Parallel Digital Currencies and Sticky Prices

Harald Uhlig () and Taojun Xie

No 15619, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The rise of digital currencies may result in domestic parallel currencies. Their exchange rate shocks will present a new challenge for monetary policy. We analyze these issues in a New Keynesian framework, where firms can set prices in one of the available currencies. Price rigidity translates a one-time appreciation of a parallel currency into persistent redistribution towards the dollar sector output and inflation. The persistence lasts longer if the central bank targets "dollar"-sector inflation, rather than inflation across all currency sectors. An increase in dollar price rigidity may lead to a decrease rather than an increase of the non-dollar sector.

Keywords: Digital currency; Currency choice; Monetary policy; Sticky prices; New keynesian model (search for similar items in EconPapers)
JEL-codes: E30 E52 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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