The impact of central bank digital currency news on the stock and cryptocurrency markets: Evidence from the TVP-VAR model

Mohamad Husam Helmi, Abdurrahman Nazif Çatık and Coşkun Akdeniz

Research in International Business and Finance, 2023, vol. 65, issue C

Abstract: This study employs a non-linear framework to investigate the impacts of central bank digital currency (CBDC) news on the financial and cryptocurrency markets. The time-varying vector autoregressive (TVP-VAR) model developed by Primiceri (2005) is estimated based on weekly data from the first week of January 2015 to the last week of December 2021. The vector of endogenous variables in the VAR estimation contains the Central Bank Digital Currency uncertainty index (CBDCU), cryptocurrency policy uncertainty index, S&P 500 index, VIX, and Bitcoin price. The TVP-VAR model’s time-varying responses demonstrated that the reactions of the cryptocurrency market to central bank digital currency announcements vary remarkably over time. The impacts of the CBDC shocks on the financial market have been increasingly visible during the COVID-19 pandemic. According to the time-varying forecast error decompositions, CBDCU and VIX shocks have accounted for most of the variance in cryptocurrency uncertainty and Bitcoin return shocks, notably during the COVID-19 period.

Keywords: Central bank digital currency (CBDC); Digital money; Financial markets; Cryptocurrency; TVP-VAR (search for similar items in EconPapers)
JEL-codes: C72 E42 E51 E52 E58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000946

DOI: 10.1016/j.ribaf.2023.101968

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