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The Extensive Margin of Trade and Monetary Policy

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  • Yuko Imura
  • Malik Shukayev

Abstract

Many central banks are contemplating whether to issue a central bank digital currency (CDBC). CDBC has certain potential benefits, including the possibility that it can bear interest. However, using CBDC is costly for agents, perhaps because they lose their anonymity when using CBDC instead of cash. I study optimal monetary policy when only cash, only CBDC, or both cash and CBDC are available to agents. If the cost of using CBDC is not too high, more efficient allocations can be implemented by using CBDC than with cash, and the first best can be achieved. Having both cash and CBDC available may result in lower welfare than in cases where only cash or only CBDC is available. The welfare gains of introducing CBDC are estimated as up to 0.64% for Canada.

Suggested Citation

  • Yuko Imura & Malik Shukayev, 2018. "The Extensive Margin of Trade and Monetary Policy," Staff Working Papers 18-37, Bank of Canada.
    • Handle: RePEc:bca:bocawp:18-37
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    References listed on IDEAS

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    Cited by:

    1. Caldara, Dario & Iacoviello, Matteo & Molligo, Patrick & Prestipino, Andrea & Raffo, Andrea, 2020. "The economic effects of trade policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 38-59.
    2. Fabio Ghironi & Daisoon Kim & Galip Kemal Ozhan, 2023. "International Economic Sanctions and Third-Country Effects," Staff Working Papers 23-46, Bank of Canada.
    3. Kaya Tokmakcioglu & Oguzhan Ozcelebi & Ali Sezin Ozdemir, 2019. "The role of asymmetry in the interplay between internal and external factors: Empirical evidence from the US, Brazil, Canada and Mexico," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 55-75.

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    More about this item

    Keywords

    Business fluctuations and cycles; Economic models; Firm dynamics; International topics; Monetary policy;
    All these keywords.

    JEL classification:

    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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