Forecasting macroeconomic effects of stablecoin adoption: A Bayesian approach

This study analyzes the effect of stablecoin adoption on key macroeconomic factors in Montenegro. The main explanation for the adoption of stablecoins is their one-to-one peg to various currencies and commodities. Previous studies have relied on the relationships among cryptocurrencies and thus coul...

Full description

Saved in:
Bibliographic Details
Published inEconomic modelling Vol. 109; p. 105792
Main Authors Bojaj, Martin M., Muhadinovic, Milica, Bracanovic, Andrej, Mihailovic, Andrej, Radulovic, Mladen, Jolicic, Ivan, Milosevic, Igor, Milacic, Veselin
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.04.2022
Subjects
Bitcoin
Connectedness
Forecast
Macroeconometrics
Policy objective
Stablecoin adoption
Macroeconometrics
E61
C5
O14
Bitcoin
Forecast
Stablecoin adoption
Connectedness
E17
Policy objective
Online AccessGet full text

Cover

More Information
Summary:This study analyzes the effect of stablecoin adoption on key macroeconomic factors in Montenegro. The main explanation for the adoption of stablecoins is their one-to-one peg to various currencies and commodities. Previous studies have relied on the relationships among cryptocurrencies and thus could not disentangle the country-level macroeconomic effects of stablecoins from the effects of other cryptocurrencies. Using data from January 2006 to December 2019, we decompose the correlation between cryptocurrencies and their effects on the economy due to (a) shocks to stablecoins and (b) shocks to Bitcoin. Contrary to assumptions, stablecoins do not maintain their peg in “crash times” but do promote economic growth. Bitcoin's volatility deanchors investor expectations, disrupts markets, and destabilizes key macroeconomic factors. Our novel findings indicate that stablecoin adoption should not be based only on a one-to-one assumption and reveal the mechanism of key gaps by a prudential authority. •The study analyzes the effect of stablecoin adoption on key macroeconomic factors.•We decompose the effect of stablecoin and Bitcoin shocks to the economy.•Stablecoins cannot maintain their peg in “crash times” but can promote growth.•Bitcoin's volatility deanchors investors' expectations and destabilizes economies.•Stablecoin adoption should not be based only on a one-to-one assumption.
ISSN:0264-9993
1873-6122
DOI:10.1016/j.econmod.2022.105792