Currency substitution under transaction costs
LM Schilling, H Uhlig - AEA Papers and Proceedings, 2019 - aeaweb.org
AEA Papers and Proceedings, 2019•aeaweb.org
We consider a setting where agents can choose between two currencies to conduct their
goods purchases. The usage of either currency comes with currency-specific transactions
costs. For example, purchasing some goods with cryptocurrencies rather than dollars is
easier and may avoid taxes. We explore an extension of Schilling-Uhlig (2019), allowing for
asymmetry in transaction costs as well as dollar-bitcoin exchange fees. Agents alternate in
their role as buyers and sellers, necessitating currency. A central bank steers the dollar …
goods purchases. The usage of either currency comes with currency-specific transactions
costs. For example, purchasing some goods with cryptocurrencies rather than dollars is
easier and may avoid taxes. We explore an extension of Schilling-Uhlig (2019), allowing for
asymmetry in transaction costs as well as dollar-bitcoin exchange fees. Agents alternate in
their role as buyers and sellers, necessitating currency. A central bank steers the dollar …
Abstract
We consider a setting where agents can choose between two currencies to conduct their goods purchases. The usage of either currency comes with currency-specific transactions costs. For example, purchasing some goods with cryptocurrencies rather than dollars is easier and may avoid taxes. We explore an extension of Schilling-Uhlig (2019), allowing for asymmetry in transaction costs as well as dollar-bitcoin exchange fees. Agents alternate in their role as buyers and sellers, necessitating currency. A central bank steers the dollar inflation path, while bitcoins are in fixed supply. We characterize the nonstochastic equilibrium and the resulting exchange rate dynamics.
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