Time-varying coefficient DAR model and stability measures for stablecoin prices: An application to Tether

Antoine Djogbenou, Emre Inan and Joann Jasiak

Journal of International Money and Finance, 2023, vol. 139, issue C

Abstract: This paper examines the dynamics of Tether, the stablecoin with the largest market capitalization. We show that the distributional and dynamic properties of Tether/USD rates have been evolving between 2017 - 2021. We use local analysis methods to detect local trends and time-varying volatility and persistence. To accommodate these dynamic patterns, we introduce the time-varying parameter Double Autoregressive tvDAR(1) process under the assumption of local stationarity of Tether/USD rates. We also propose a set of simple plug-in measures of stability based on the Lyapunov exponent for assessing and comparing the stability of Tether and other stablecoins. We show the consistency of stability measure estimators and study their distributional properties. The tvDAR model is estimated on Tether prices and compared with other stablecoins. We find that it provides good fit to data with time-varying persistence and volatility and produces reliable out-of-sample forecasts at short horizons. In the application, the proposed stability measures provide reliable indicators of local explosive patterns for stablecoin monitoring.

Keywords: Stablecoins; Tether; DAR model; Lyapunov exponent; Time-varying parameters; Conditional heteroskedasticity; Local stationarity (search for similar items in EconPapers)
JEL-codes: C13 C58 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S026156062300147X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Time-Varying Coefficient DAR Model and Stability Measures for Stablecoin Prices: An Application to Tether (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:139:y:2023:i:c:s026156062300147x

DOI: 10.1016/j.jimonfin.2023.102946

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().