Parallel Digital Currencies and Sticky Prices
Harald Uhlig () and
Taojun Xie ()
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Harald Uhlig: University of Chicago - Department of Economics; CEPR; NBER
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
The recent rise of digital currencies opens the door to their use in parallel alongside official currencies (â€œdollarâ€ ) 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
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon, nep-pay and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:bfi:wpaper:2020-188
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